The Bank of England’s zero interest rate policy widened the wealth gap

The Sunday Times rich list came out and – big surprise – the rich got richer (or in the case of Russians, better at hiding their wealth). In other news, runaway inflation in food and fuel prices is impoverishing the poor. These stories are linked, not by a grand critique of capitalism, but by the pursuit of easy money. Central banks suppressing interest rates through the zero interest rate policy (ZIRP) had a very different impact on the rich and the poor. ZIRP is a nasty acronym that hides a nasty secret. The Bank of England pursues a policy that generates inequalities of wealth.

Most debt is held by governments, corporations and landowners. Low interest rates suit all three groups because it means they can spend more, increase shareholder returns, and buy larger properties, respectively. Low interest rates increase the level of borrowing by these groups, thereby increasing the level of indebtedness of the economy.


The rate at which the debt level increases is important because the act of a commercial bank granting a loan is usually how new money is created. The more debt there is, the more money there is in the economy. If the quantity of money grows faster than economic activity, we start to see inflation. Additionally, the Bank engaged in direct money creation through quantitative easing, further increasing the money supply. We have experienced two generations of house price and rent inflation. We now see inflation rising are the prices of other essentials of life. The wealthy are protected as their assets increase in value, their rents rise, and basic necessities make up only a small proportion of their spending. The government is protected because tax revenue increases and spending can be kept below the actual level of inflation.

Debt and inflation work very differently for those who are not wealthy. Try borrowing money if you have no assets. Being able to borrow small amounts is a key part of the safety net for many families. This short delay in receiving benefits or this unexpected bill can be penalized by high interest rates and sometimes lead to the debt spiral of interest on unpaid interest. Payday lenders do not operate ZIRP. At the same time, all the inflation created by central banks erodes the real value of wages.


New grads currently pay 12% on their student loans and simultaneously receive 1% interest on their deposits for a first home. A first house that the Bank of England is helping to push back even further. Many graduates find it difficult to save anything given the level of rent, utility bills, and the cost of food. It will cause anger.

It’s not capitalism; it is a corruption of capitalism. Millions of loan transactions allow the market to set interest rates. There is no need for the Bank of England to engage in the market manipulation that is ZIRP. We have a simple choice: end easy money or create a polarized and angry society. The Bank of England’s mission to create inflation and artificially lower interest rates must end. The Bank should focus on safeguarding our monetary and financial system. If governments want to spend more, they should raise funds through taxation or borrow on the open market. This rich list includes extraordinary entrepreneurs who do not need the help of the Bank, nor land and property owners.

Sebastian Chambers is the author of The A-Z of Inequality, published by White Fox, priced at £10 and available from

Related: What About Our Own ‘Dirty Rich’ Oligarchs?

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