The transmission mechanism from QE to the real economy appears to be broken

Global stockmarkets are still digesting the UK's decision to leave the EU back in June, and while economic data is holding firm, valuations in the UK equity market have polarised with material rises in companies deriving significant profits abroad, reflecting the sharp fall in sterling.

The share prices of UK domestically-focused companies fell with fears that the economy will not hold up, although many have rallied as data has been better than expected. All this is set against a backdrop where already low real interest rates in developed economies are falling further as a result of the pick-up in inflation. This brings interest rates into sharp focus for investors. Market commentators have acknowledged that the transmission mechanism from QE to the real economy appears broken, and that view seems to be growing within the minds of policymakers, so fiscal loosening ha...