35 leading economists sent an open letter to Philip Hammond asking that he supports a new form of monetary policy. Responding to concerns expressed by the Prime Minister that low rates and quantitative easing have disproportionately benefited the wealthy, the letter argues that new monetary policy tools could stimulate the economy without contributing to inequality.
Fran Boait, Executive Director of Positive Money, commented on the Bank of England's latest announcement that it will cut interest rates and restart its quantitative easing programme. She said,
The Bank of England (BoE) has just announced its new monetary stimulus package. By lowering interest rates and expanding quantitative easing, the stimulus will exacerbate inequality and encourage an already highly-indebted household sector to borrow even more. The new government has pledged to build an economy that works for everyone and has made a strong commitment to tackling inequality. If it’s serious, it should support fairer and more sustainable monetary policy measures than those announced today.
With recent data showing that economic conditions seem to be deteriorating, the Bank of England is expected to lower its UK growth forecasts and come up with a stimulus package to aid the UK economy. Instead of cutting interest rates or pumping more electronic money into financial markets – resulting in higher levels of household debt – the Treasury and the Bank of England should seize this opportunity to cooperate. The Treasury should support the design of alternative monetary policy tools, so that the Bank of England can use its power to create money to finance a fiscal stimulus.
"How is money created? It masquerades as such a simple question, but it’s one that befuddles MPs, even economists and so many of us who happily use the stuff every day.", reads the article in The Daily Mail, 29th July 2016.