While helping to keep borrowing costs extraordinarily low in the decade following the financial crisis, asset purchases—commonly known as quantitative easing (QE)—have generated deep structural challenges. Those owning financial and physical assets have seen their personal wealth surge. The FTSE 250 stock index rose dramatically, while average UK house prices surged by over 60% between 2010 and 2022. In contrast, the poorest 20% of households saw virtually no net real wealth accumulation from asset appreciation, while the top 10% enjoyed an average wealth gain exceeding £280,000, driven largely by equity and property portfolios. However, policymakers at the Bank of England have consistently defended the policy, arguing that without QE, unemployment would have been significantly higher and long-term economic scarring much worse.
Ultra-low interest rates and sustained liquidity injections reduced the returns on cash savings, but they significantly lowered mortgage servicing costs for many households. While this supported consumer spending and aided the post-recession recovery, it facilitated a dramatic expansion of private sector leverage. Non-mortgage consumer credit, such as car finance and personal loans, climbed rapidly to record levels. Furthermore, some economic analysts point out that cheap debt has kept unviable, low-productivity ('zombie') firms alive, acting as a drag on the UK’s long-term productivity growth. There are also growing concerns regarding the impact on the cost of living as inflation accelerated.
Historically, central bank asset purchases operated alongside a period of tight fiscal consolidation (austerity) pursued by governments trying to shrink the budget deficit. With fiscal policy acting as a contractionary force, the burden of stimulating demand fell almost entirely on monetary policy. This imbalance made it exceptionally difficult for the MPC to normalise policy or raise the Bank Rate without risking a premature slowdown. Although the Bank of England eventually began raising rates and selling down its asset holdings (quantitative tightening), borrowing costs remain highly sensitive to these shifts.
Some critics argue that QE has become a structural trap, where any attempt to reverse it risks triggering severe financial instability. Many economists fear that QE has reached a point of diminishing returns, where any further rounds will do little to boost output but will exacerbate asset bubbles, entrench wealth inequality, and fuel inflationary pressures. Consequently, there is an active debate over whether future demand management should rely far more on targeted fiscal interventions and public investment rather than monetary engineering.
Using the data in the extracts and your knowledge of economics, assess the view that the prolonged reliance on quantitative easing (QE) has caused more harm than good to the UK economy.
