This policy paper proposes a new framework for UK macroeconomic policy. Since the global financial crisis, monetary and fiscal policy have been pulling in opposite directions. On the one hand the government has been withdrawing demand from the economy through severe public spending cuts. On the other, with interest rates close to zero, the Bank of England has used quantitative easing (QE) to inject demand into the economy. The result has been the slowest recovery from recession in modern times, an inequitable and distorting rise in asset prices, and interest rates still close to zero. This has left policymakers without a reliable set of tools to combat the next recession.
