Economic Historian Warns Over UK Quantitative Easing Programme

Amanda Cheesley

8 August 2022

With a recession predicted in the UK for the end of this year and inflation set to spike, urged the Bank of England this week to heed what the Romans did not, and adopt a pragmatic approach to monetary policy to avoid economic disaster.

The statement comes after the central bank revised its inflation projection for Q3 2023 to 9.5 per cent, up from its May prediction of 5.9 per cent.

"These revised inflation figures are exactly what was expected from this report,” Maher said in a statement.

“The Bank of England drastically underestimated the inflationary pressure their quantitative easing programme would create. Now, with the central bank having to enact the biggest interest rate rise in 27 years, they are having to fight an inflationary fire which will evidently not be put out for some time yet,” he added.

"As predicted, the central bank continues to place the blame squarely on the shoulders on the war in Ukraine. While this has undoubtedly impacted global prices, the central bank's continued willingness to ignore the inflationary effect of last year’s quantitative easing programme is both unsurprising and worrying,” he stressed.

“The longer it continues to feign ignorance, the more likely it is the bank will utilise QE on further occasions,” he added.

“Money supply has increased by almost £500 billion ($606 billion) since the start of the pandemic, resulting in bank deposits going up by the same amount, or 20 per cent. While some may be in a position to save that money, inflationary pressures driven by QE mean that in order to simply keep living, many have had to spend that money, driving inflation even further and ensuring they are no better off than they were pre-pandemic. NIESR figures released this week suggest one in five households will have no savings by 2024,” he explained.

"The ancient Romans failed to end their obsession with QE, and it ultimately led to economic collapse and the end of the empire,” he warned.

“With a recession predicted for the end of this year and inflation set to continue rising, the central bank must heed that which the Romans did not, and adopt a pragmatic approach to monetary policy if we are to avoid economic disaster," he stressed.

Nevertheless,the central bank announced this week that the MPC would take a vote at the September meeting to decide whether or not to start actively selling its holdings of gilts, in order to shrink the size of its balance sheet faster. This is known as quantitative tightening (QT) or the reverse of the quantitative easing seen over the past decade.

"QT should reduce the amount of liquidity and in theory inflation pressures in the economy," investment manager Schroders said in a statement. "If approved, the planned sales would commence from that point, and would help to reduce the size of the central bank’s balance sheet by £80 billion over the next 12 months," Schroders added.

Maher is the author of Pugnare: Economic Success and Failure, which looks at the rise and fall of the Roman Empire from a financial perspective, showing how stability broke down when inflation set off and how the highly advanced banking system ultimately failed in AD 260. He also holds a PhD in the economy of the Roman Empire from King’s College London.