A group of international economists have publicly called on the UK government to establish a “new collaborative relationship” with the Bank of England in order to create helicopter money in response to Brexit.
In an open letter published in The Guardian, the economists, many from leading universities in the UK, US and Europe, state that Brexit has made the UK economy more uncertain than at any time since 2008.
“Instead of policies designed to fuel asset price bubbles and increase household debt, the Treasury and the Bank should co-operate to directly stimulate aggregate demand in the real economy,” the letter says.
The economists recommend fiscal stimulus financed by the Bank of England to fund investment in infrastructure. Alternatively they suggest a tax cut or direct cash transfers to households.
The economists point out that interest rates had never fallen below 2 per cent before 2009, but since that period they have not risen above 0.5 per cent.
They add that a further expansion of the bank’s £375bn QE programme is the “wrong solution for today’s economic problems”.
“The success of both of these policies is dependent on the private sector taking on even more debt. These policies are being considered despite the Bank itself identifying household debt as one of the most significant risks to our economy. Responding to a potential recession by risking financial stability with more private debt hardly seems like a viable policy solution,” they say.
“QE was arguably required in 2009 to provide the banking sector with liquidity in the face of a frozen interbank lending market. The risks facing our economy have little to do with the availability of liquidity in the financial sector, and all to do with businesses and households cutting spending due to an increasingly uncertain economic outlook.”
The signatories include M&G head of multi asset research Eric Lonergan, Keynes biographer Lord Robert Skidelsky, as well as economists from Copenhagen Business School, Brown University, Trinity College Dublin, as well as some of the UK’s leading universities, including Oxford, LSE and Cass Business School.