The paper, written by Philip Bunn, a senior economist at the bank, and researchers Alice Pugh and Chris Yeates, examined the impact on income, rather than wealth, of the policies between 2008 and 2014, including exceptionally low interest rates and quantitative easing, which both made credit cheap for individuals and companies.
The researchers concluded: “Looking across age groups, we estimate that monetary policy disproportionately supported the incomes of the young.
"Monetary easing led to lower unemployment and higher wages than would have otherwise been the case, which particularly benefited younger age groups because they are more likely to work than older groups and because their job prospects tend to be more pro-cyclical.”
This is based on the central bank’s view that the monetary policy instruments introduced during and since the financial crisis prevented a deeper recession.
If such a recession had occurred, unemployment would have been higher, and as younger people are more likely to be in the workforce, they benefited more as a result of those policies than did older people, who are less likely to be in the workforce.
Although sluggish wage growth has been a feature of the UK economy since the crisis, the research paper said wages would have been lower still if interest rates had been higher, as unemployment would have been higher, meaning employers would have more workers chasing each vacancy and so less pressure on employers to offer higher wages.
Bruce Stout, who runs the £1.6bn Murray International investment trust has been a critic of central bank policies since the financial crisis, describing QE as “vandalism”.
He has argued against the idea that increasing the supply of money means demand for it rises.
Mr Stout said: “You can bring a horse to water, but you cannot make it drink.”
He said the engine of economic growth is missing because QE has pushed property prices upwards, and so, people have to save for a longer period of time to be able to afford a house, so young people save more of their income rather than spend it.
He said this extra quantity of saving means younger people are not spending any extra gains from the low interest rates policy, and so demand for money, and then demand for goods and services in the economy, does not rise as interest rates fall.
John Chatfeild Roberts, multi-manager fund manager at Jupiter believes QE has hindered wage growth.
He said one of the effects of low interest rates is companies which would otherwise go out of business remain active. While this keeps unemployment low, it depresses wages, because companies are not able to put prices up as they would be if the least efficient of their rivals have gone out of business. Because they cannot put prices up, they cannot put wages up.
Mr Chatfeild Roberts said this also means long-term economic growth is lower, as companies have less incentive to invest in new machinery which might increase productivity because they are not confident they can get a higher price in future for the goods made by the new machine. So even though lower interest rates make it cheaper for companies to expand, they do not do so.
The Bank of England paper makes it clear it is assessing the impact of monetary policy over the shorter term, not considering the longer term.
The Bank of England paper added: “Younger households are also more likely to be borrowers than savers and so have seen their interest payments fall. In contrast, older households are more likely to have lost out on savings income.”
David.Thorpe@ft.com
