The COVID-19 pandemic caused an unprecedented economic shock in the United Kingdom, leading to significant government intervention to stabilize the economy. One of the most powerful tools used by the Bank of England during this time was Quantitative Easing (QE). While QE had already been employed after the 2008 financial crisis, its role became even more critical in the post-pandemic recovery. But how exactly has QE contributed to the economic rebound, and what long-term effects might it have?
Let’s break down how QE works, its role in helping the UK economy recover from the pandemic, and some potential consequences of relying on this tool for so long.

What Is Quantitative Easing?
Quantitative Easing is a form of monetary policy where the Bank of England buys government bonds and other financial assets to inject money into the economy. The idea is to lower interest rates, making it cheaper for businesses and individuals to borrow money. When borrowing is more affordable, spending and investment typically increase, which can stimulate economic growth.
During the COVID-19 pandemic, the Bank of England ramped up QE to support the economy when it was hit by lockdowns, a drop in consumer demand, and mass uncertainty. By purchasing government bonds, the Bank increased the money supply, hoping to keep borrowing costs low and encourage economic activity.

How QE Supported the Economy During COVID-19
The pandemic led to a sudden halt in many sectors of the economy, from retail to hospitality. In response, the Bank of England expanded its QE program, purchasing £895 billion worth of government bonds. According to the Bank of England, this was done to ensure there was enough liquidity in the financial system, preventing a more severe economic downturn.
By lowering borrowing costs, QE made it easier for the UK government to finance its pandemic relief programs, such as furlough schemes and business grants. Without QE, the government would have struggled to raise the money it needed to support jobs, businesses, and public health during the crisis. This provided a crucial safety net, allowing companies to survive and preventing mass unemployment.
At the same time, QE helped to keep interest rates on mortgages and business loans low. This encouraged both consumer spending and business investment at a time when confidence was fragile. As a result, the economy avoided a more prolonged recession, and by 2021, there were signs of recovery as restrictions eased and consumer demand returned.

The Impact on Inflation
While QE was effective in supporting the UK economy during the height of the pandemic, it has also contributed to rising inflation. By increasing the money supply, QE puts upward pressure on prices. In 2023, inflation in the UK hit record highs, driven by a mix of factors, including supply chain disruptions, energy price shocks, and the lingering effects of QE.
The House of Lords Economic Affairs Committee raised concerns that prolonged use of QE could lead to inflationary pressures that might be hard to control. As more money circulates in the economy, the demand for goods and services increases, which can push prices up. While inflation is a natural part of economic recovery, rising too quickly can harm household purchasing power and complicate long-term economic planning.

Effect on Housing and Asset Prices
One of the most noticeable effects of QE has been on asset prices, particularly in the housing market. As QE lowers interest rates, mortgages become more affordable, leading to increased demand for housing. According to research from the University of Bath, QE has helped drive up property prices in the UK, as lower borrowing costs encouraged more people to buy homes.
While this has been beneficial for homeowners and property investors, it has also made it more difficult for first-time buyers to get on the property ladder. As house prices rise faster than wages, many people are finding it increasingly unaffordable to purchase homes, particularly in cities like London. In this sense, QE has contributed to growing inequality in the housing market.
In addition to housing, QE has also pushed up the prices of other assets, such as stocks and bonds. By increasing the money supply, QE has created more demand for investments, driving up their prices. This has benefited those who already own assets but has done little to help those without significant investments.

Long-Term Risks of QE
While QE has been essential for stabilizing the UK economy during the COVID-19 crisis, there are concerns about its long-term effects. The International Monetary Fund (IMF) has warned that relying too heavily on QE can create economic imbalances. For example, sustained low interest rates can lead to over-borrowing, which may result in debt bubbles that could burst in the future.
Additionally, as Rollins College notes in their study on post-crisis QE, the policy can distort financial markets by encouraging excessive risk-taking. When interest rates are low for an extended period, investors may seek higher returns by investing in riskier assets, which can lead to market instability.
Furthermore, there is the challenge of how to exit QE without causing economic disruption. The Bank of England has hinted at plans to scale back QE and raise interest rates, but doing so too quickly could destabilize financial markets and slow down the recovery. On the other hand, keeping QE in place for too long could fuel more inflation, making it a delicate balancing act.

What’s Next for the UK Economy?
As the UK continues its recovery from the pandemic, the Bank of England faces tough decisions about how to manage QE. The challenge will be to withdraw the stimulus gradually while ensuring the economy remains on solid footing. According to the IMF, the Bank will likely need to raise interest rates in the coming years to curb inflation, but it must do so without choking off the recovery.
For now, QE has played an important role in the UK’s post-COVID economic recovery. It has supported the government’s response to the pandemic, kept borrowing costs low, and helped to stabilize financial markets. However, as inflation rises and the economy begins to recover more fully, the Bank of England will need to carefully consider how to unwind this extraordinary monetary policy.

A Double-Edged Sword
Quantitative Easing has undoubtedly been a crucial tool in the UK’s response to the economic challenges posed by the COVID-19 pandemic. By lowering borrowing costs and supporting government spending, QE has helped to avoid a deeper recession and set the stage for recovery. However, the long-term effects of QE—particularly on inflation and asset prices—are becoming more evident.
As the UK moves forward, the Bank of England faces the delicate task of managing inflation while ensuring that the economic recovery remains robust. Whether the benefits of QE will continue to outweigh its risks is a question that will shape the future of UK monetary policy.