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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, Jon Moulton and Tim Knox - Wednesday 13th July 2016

Daniel joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians.

Jon Moulton is Chairman of FinnCap, the major AIM broker and of The International Stock Exchange. He is Chair of the turnaround firm Better Capital and also of Greensphere, an alternative energy infrastructure fund (which was partnered with the Texas Pacific Group). 

Tim Knox was Director of the CPS from 2011-2017. Before he was Director, Tim was the Editor at the CPS - a position in which he was responsible for publishing papers by every Conservative leader since Mrs Thatcher as well as by hundreds of leading academics and opinion formers.