As the Bank of England scrambles to unwind the disastrous effects of quantitative easing, the hidden costs of this policy are becoming clear, says Damian Pudner

Quantitative easing (QE) has long been the Bank of England’s monetary policy nuclear option. Launched in 2009 to save a collapsing financial system, it was supercharged during the pandemic, pumping £895bn into the economy. But now, as the Bank scrambles to unwind QE with quantitative tightening (QT), the hidden costs of this policy are coming into sharp focus – and at the worst possible time.

QE was a massive asset swap. The government replaced medium-to-long-term fixed-rate debt liabilities with short-term variable-rate liabilities tied to Bank Rate. This was fine when interest rates were near zero, but now, with rates at multi-decade highs, it’s become an expensive reminder of what was supposed to be a temporary emergency measure.

Under QE, the Bank ‘printed’ money to buy government bonds from the private sector, flooding the economy with liquidity. Borrowing costs dropped, and an era of “cheap money” began. Stocks and property prices soared, lining the pockets of asset owners while leaving younger generations locked out of the housing market. Far from reducing inequality, QE merely widened the gap between the “haves” and “have-nots.”

In 2009, QE was hailed as a saviour, staving off deflation and stabilising a broken banking system. During the pandemic, it injected £450bn into a Covid-stricken economy as lockdowns paralysed global commerce and money supply growth collapsed. But........

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