An overseas friend asked me last week: “How is the guinea pig doing?” He meant the UK economy, which has embarked on an extreme version of the tight fiscal/easy monetary mix which all other developed economies are trying in varying doses. The answer I gave him was that Plan A was severely fraying around the edges, but that it just about remained intact.
That has become clearer with the decision by the Bank of England to re-launch QE in much larger size than anyone expected. While this is consistent with Plan A, there do seem to be differences between the Treasury and the Bank over the nature of the quantitative easing which the Bank is pursuing. These revolve around the question of whether unconventional QE should now be on the agenda. Read more