The double-edged sword of quantitative easing (QE) was felt sharply on Friday, as the policy once hailed as an economic saviour was recast as a fiscal menace, prompting a tax proposal that sliced £6.4 billion off the value of UK banks.
The first edge of the sword was its role after the 2008 crisis, where it injected liquidity into the system and was credited with preventing a deeper recession. For years, this was the dominant narrative, and banks were key partners in the process.
The second, sharper edge has been revealed in the current high-interest-rate environment. The policy is now costing the public purse £22 billion a year, transforming it into a fiscal menace. The IPPR’s report argued that the banks, who benefited from the first edge, should now be held accountable for the second.
This recasting of QE’s legacy terrified the markets. The sell-off in banking stocks was a direct reaction to the fear that the government would now wield this second edge against the industry. It highlights the complex, long-term trade-offs of major economic interventions, where yesterday’s solutions can become today’s problems.