What more can policymakers do?

Should UK interest rates fall to zero, it is likely that UK policymakers will follow in the footsteps of the US Federal Reserve and adopt a formal policy of quantitative easing (QE). While QE is a powerful tool, we think that the practical limitations will mean that UK policymakers are likely to do too little, rather than too much. Accordingly, a deep recession and prolonged period of low inflation, or even deflation, is more likely than a quick rebound in activity and a surge in inflation.