The quantitative easing (QE) bond-buying programmes pursued by major central banks around the world are “like heroin”, according to the former top Treasury civil servant.
In an unusual intervention Lord Macpherson, who served as permanent secretary to the Treasury, said today it is “time to move on” from the stimulus measure.
Macpherson said QE required “ever increasing fixes to create a high”. Writing on Twitter, he added: “Meanwhile, negative side effects increase.”
Macpherson occupied a key role at the Treasury from 2008 until 2016, serving under chancellors Alistair Darling and George Osborne as the government and the Bank of England fought to contain the effects of the global financial crisis.
QE bond purchases were first introduced in the UK in March 2009 as interest rates hit their lower bound, forcing central banks to look for more unorthodox solutions to stimulate the economy. The Bank has since bought £435bn of government bonds, as well as more corporate bonds, in an effort to force banks to lend more to the economy.
The merits of QE are hotly debated. In evidence this year to the Treasury Select Committee, the Bank of England pointed to studies finding that £200bn in QE was equivalent to an interest rate cut of as much as three per cent.
Philip Shaw, an economist at Investec, said: “On balance it’s certainly positive, but you get diminishing returns for scale as you go on.”
However, negative effects, such as increased prices and consequent smaller returns for savers, have become more prominent as the crisis has receded.
“Since the initial round the main effect has been to inflate markets and has had little effect on the real economy,” said Simon Ward, chief economist at Janus Henderson Investors.
“The marginal benefit has reduced over time and is now pretty small."
Central banks around the world are beginning to consider unwinding QE bond purchases. The so-called normalisation of monetary policy, including removing QE stimulus, is set to be a major topic at the central bankers’ forum at Jackson Hole taking place at the end of this week.