Liam Halligan

Quantitative easing is a dangerous addiction

We are hooked on the economic equivalent of crack cocaine

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The FTSE-100 index of leading stocks is over 20 per cent up since Britain went into lockdown — ‘bull market’ territory. The government borrowed £55 billion in May, nine times more than the same month last year — yet borrowing costs are down, with some investors now paying to lend to an increasingly indebted nation.

Who cares if the UK economy will shrink some 10 per cent this year, as our national debt rockets above 100 per cent of GDP? Stocks are up, bond prices are up and the laws of economics have been suspended. It’s different this time — and all because of quantitative easing.

Back in 2009, with the global banking system on the brink of collapse, QE was a justifiable emergency measure. But this one-off post-crisis necessity has now morphed into a lifestyle choice. For a decade since the financial crisis, QE has pumped up share prices and suppressed bond yields, allowing governments to borrow cheaply. But as state spending has surged post-Covid, we’ve become dependent. QE is now the economic equivalent of crack cocaine.

Originally a £50 billion temporary rescue plan, the Bank of England — egged on by City financiers and high-spending politicians — expanded QE over ten years to around £450 billion. Since March, it has ballooned again, into a £745 billion binge, with our central bank now buying government debt twice as fast as in 2009/10.

The combined balance sheet of the Federal Reserve, the European Central Bank and the Bank of Japan has similarly swollen since Covid, by a third over the past three months. So QE is no problem — everyone’s doing it!

Much of our political and media class has indeed concluded that interest rates are low, and will stay low, so governments can keep borrowing.

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