A recent Goldman Sachs piece on the UK holds the view that the BoE's recent resumption of asset purchases will permit and prompt UK fiscal policy to be looser, postponing consolidation of the deficit. The mechanism at work is that, comforted by the knowledge that there is a large buyer with a deep pocket for the debt, yields are lower, and this in turn makes the government more comfortable about borrowing, the yield reduction providing more fiscal space.
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QE: leads to looser or tighter fiscal policy?
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A recent Goldman Sachs piece on the UK holds the view that the BoE's recent resumption of asset purchases will permit and prompt UK fiscal policy to be looser, postponing consolidation of the deficit. The mechanism at work is that, comforted by the knowledge that there is a large buyer with a deep pocket for the debt, yields are lower, and this in turn makes the government more comfortable about borrowing, the yield reduction providing more fiscal space.