The fact that fiscal policy is now driving monetary policy in the United Kingdom cannot be admitted, and not only to maintain the perception of central-bank independence. More fundamentally, admitting that the Bank of England is an agent of the Treasury would destroy the intellectual edifice of current macroeconomic theory.
LONDON – Since March 2020, the Bank of England (BOE) has bought £450 billion ($639 billion) of UK government debt through its so-called Asset Purchase Facility. Virtually all of this was new debt issued by the government since the start of the COVID-19 crisis. The BOE’s purchases look like a thinly veiled attempt to use quantitative easing (QE) to finance the government’s deficit and ensure low borrowing costs. Is this still monetary policy, or is the central bank conducting fiscal policy by the back door?
LONDON – Since March 2020, the Bank of England (BOE) has bought £450 billion ($639 billion) of UK government debt through its so-called Asset Purchase Facility. Virtually all of this was new debt issued by the government since the start of the COVID-19 crisis. The BOE’s purchases look like a thinly veiled attempt to use quantitative easing (QE) to finance the government’s deficit and ensure low borrowing costs. Is this still monetary policy, or is the central bank conducting fiscal policy by the back door?