Can the UK inflate away its debt problems?


Can the UK inflate away its debt problems?

On current plans, UK sovereign debt will remain above 40% of national income for at least 20 years.

Economic Analysis

15 February 2013

 

Some suggest that the Government could reach that level much sooner by inflating the debt away. We do not think this is a credible option. It would take 15% inflation to bring the debt ratio back towards pre-crisis levels within 5 years. In other words, a planned return to the 1970s. Engineering inflation of this magnitude would require a radical change in economic policy and generate enormously damaging side effects.

Financial repression - forcing agents to hold government bonds in order to keep sovereign borrowing rates artificially low - represents a more likely tool than high inflation for reducing government debt.

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