The Coalition’s Economic Policy of Fiscal Austerity and Monetary Experimentation by the Bank of England

The Coalition government came to power in the midst of the Great Recession. The economic problems it has had to face have been substantial, given that the UK and the rest of the industrialised world are gripped in the worst economic downturn since the 1930s. The government’s policy response has been remarkably conservative, in all senses of the word. Far from questioning the Thatcher legacy of holding down public spending and reducing the size of government, the Coalition has broadly pursued a conventional policy of fiscal austerity within a wider agenda of reducing the size of the state. In contrast, the Bank of England has been obliged to implement various forms of unconventional monetary policy to prevent the economy from collapsing. What exactly the consequences of these policies are remains unclear : they are experimental. What this holds for the future is uncertain. But there must be serious doubts about whether the neoliberal paradigm, which is widely seen to have brought prosperity to the UK between the early 1990s and the financial crisis in 2007-08, can continue to function, albeit topped up loose money