Apocalypse Soon? The Danger of Further Loosening Monetary Policy

  • Plans to relax the UK’s deficit reduction programme open up the risk of monetary policy being used to deal with UK debt by inflation.
  • The UK has already been through unprecedentedly loose monetary policy with record low interest rates for 83 consecutive months and a £375bn QE programme.
  • Risks of persistent loose monetary policy are clear. Asset price inflation, increasing consumer debt, rising inflation and sustaining zombie firms are major risks.
  • Government borrowing costs have fallen since Brexit, but counter-intuitively costs to insure against government defaults have increased. Additional risk of investor flight if holders of 0.38 per cent yielding debt may soon face a 2.5 to 3 per cent inflation environment (as currently forecasted).
  • Abandonment of deficit targets, political instability and inappropriate monetary policy response could lead to potential recession risk.

Media Impact:

Daniel Mahoney, Tim Knox, Jon Moulton - Wednesday, 13th July, 2016