Printing money to boost the economy is like a drug, a former Treasury bigwig has warned
The policy of quantitative easing has become a dangerous fix, says Lord Macpherson
The policy of printing money to boost economic growth is like “heroin” and should be avoided, the former top mandarin at the Treasury has warned.
Lord Macpherson, who oversaw £75 billion of quantitative easing (QE) in 2009, criticised the use of the emergency measure and said the “negative side effects” of the policy increase the more it is used.
It is used to drive down the cost of borrowing and keep inflation in check.
QE - which involves the bank creating new money electronically in order buy financial assets - hit an all-time high of £435 billion following the Brexit vote when the central bank topped it up with an extra £60 billion.
Writing on Twitter, Lord Macpherson said: “QE like heroin: need ever increasing fixes to create a high. Meanwhile, negative side effects increase. Time to move on.”
QE can help the Bank push inflation back towards its 2 per cent target by driving down the cost of borrowing and bolstering asset prices to support spending.
If inflation starts outstripping the bank’s 2 per cent target then it can sell assets to decrease the amount of money flowing through the economy.
Interest rates currently stand at a historic low of 0.25 per cent, while inflation held steady at 2.6 per cent in July.
Daniel Mahoney, head of economic research at the Centre for Policy Studies, said: “Nick MacPherson’s comments on the problems associated with QE should be welcomed.