LGIM warns of asset bubble danger

Legal & General Investment's Tim Drayson says there will be considerable lags from the injection of QE, and a strong risk recovery will be hampered by a lack of availability of credit.

Drayson, LGIM’s bonds economist, says: “In the absence of strong growth, economic slack is likely to remain considerable and this should keep inflation subdued over the next year or two.” “But eventually growth should gain more traction. As spare capacity in the economy begins to shrink, policy will have to return to normal. Excessively loose monetary conditions could potentially fuel another round of asset price bubbles particularly if credit channels start functioning effectively again. He adds: "Quantitative easing will unwind naturally as assets mature, but this is unlikely to happen...