He says: “QE leads to a flood of cheap money and the mis-allocation of capital. It created asset price inflation and that of course has distributional effects on the economy – the extra money created by QE was not distributed evenly throughout the economy because it boosted asset prices, so it disproportionately benefited asset owners at the expense of everyone else – and the unwinding of that will have a major impact.
"Also I think QE created a lot of zombie companies, that is, businesses which are not viable but were able to survive due to cheap credit.”
If QE pushed asset prices up, then the logical implication is that its reverse would lead to asset prices declining, and if QE led to lots of firms surviving that would otherwise have not, the implication may be that a wave of bankruptcies will occur when the full effect of rate rises is felt in the wider economy.
Zangana's view is that growth will be negative in the UK this year, his original forecast was for a contraction of 0.8 per cent, and while he has revised this forecast upwards slightly, he continues to expect negative growth this year.
Bartholomew says the key determinant of the UK’s economic prospects over the coming year will be the performance of the US economy.
He says: “If the US can get inflation down towards its target, that should mean rates wouldn’t have to rise, and indeed could be cut in the new year. And that would enable the BoE to cut rates if it needs to. I don’t expect the US to be the major contributor to global growth over the coming year.”
Zangana says his reason for believing that inflation will remain higher in the UK than the US, where the most recent data shows it has already fallen to 5 per cent, is that US households have not seen as stark a jump in energy prices as has the UK.
Stewart Robertson, senior economist at Aviva Investors, says: “The lag between the effect of monetary policy and its announcement is supposed to be about one year. But in the old days, chancellors used to just arrive in the House Of Commons and just announce rate rises and everyone was scrambling.
"Nowadays the BoE signals in advance the direction of travel, so it may be that the impact is concertinaed. It has been almost exactly one year since rates first rose in the UK, and in that time there has been basically no growth, and it could be that it doesn’t get any worse from here.”
