Then, finally, there is the example of Japan, which has been doing this kind of stuff for a long time now, with little in the way of inflationary consequences.
None of this guarantees a smooth ride from debt markets. There are in any case some peculiarities about Japan – where the central bank has gone further still, setting no limits on the size of its asset purchases but, instead, targeting a simple zero interest rate – which makes monetary financing easier to achieve.
Japan’s ageing demographic acts as a natural, disinflationary force. The country also enjoys a massive private sector savings surplus. Neither offset applies to the UK.
All the same, it is hard to argue with the Bank of England’s central justification – that you can safely finance the deficit as long as conditions are disinflationary. For the moment, the forces acting on the economy are deeply deflationary, such that warnings of a second Great Depression are now par for the course.
When things turn, they nevertheless tend to turn very quickly. Almost inevitably, the central bank will be looking in the wrong direction when that happens. Across the globe, we are seeing very strong money supply growth thanks to a combination of central bank money printing and politically-directed expansion in bank lending. For now, inflation is the least of our worries, but further out, once economies are fully re-awoken, it is almost bound to make some kind of a reappearance, depending on what lasting damage the lockdowns inflict.