The Bank of England is under fire from criticism from the government, but also from economists and former heads of the monetary institute, who accuse it of having fallen asleep at the wheel and of having allowed inflation to settle to the strongest in the G7. Inflation exceeds 10% in the UK, a 40-year high, well below the Bank’s 2% target.
It should rise further in the coming months, up to 13% according to the BoE, triggering a purchasing power crisis that threatens to plunge many households into poverty. “Clearly something went wrong,” Business and Industry Minister Kwasi Kwarteng criticized in an interview with Sky News, saying “rates should have gone up sooner.”
“Independence is the best way to have measured and stable inflation”
Criticism that echoes the message of the favorite in the polls to succeed Boris Johnson in Downing Street: Liz Truss has proposed reviewing the status of the Bank of England, whose independence dates back to 1997. Faced with these criticisms, the governor of the Bank of England, Andrew Bailey adopted a cautious response, repeatedly saying he did not want to interfere in Conservative Party debates, even as he argued that the UK’s financial credibility depended on the independence of its central bank.
He also recalled that the BoE had raised its rates since the end of 2021, before the American Federal Reserve or the European Central Bank. Inflation slowed slightly in July in the United States, to 8.5% annually, and reached a new record in the euro zone at 8.9%. The United Kingdom suffers like the European Union from the energy crisis caused by the Russian invasion of Ukraine, but also from the interruption of supply chains and the shortage of workers exacerbated by Brexit.
But Andrew Bailey argues that a more rapid rise would have occurred amid a resumption of Covid-19 contaminations, even if the Omicron variant did not lead to new hard lockdowns. “It’s true, inflation is high this year, but the message is the same: in eight centuries, independence is the best way to have measured and stable inflation,” a member of the monetary committee, Jonathan Haskel, said on Twitter. accompanies your message. with a table where average inflation between 1997 and 2022 barely exceeds 2%.
a little slow
But the disapproving comments are not unique to the Conservative campaign: former Bank of England officials say steeper hikes earlier, when Britain’s growth was stronger, would have prevented a painful tightening and duration. The Bank of England “doesn’t have an easy task at the moment, but they have tools at their disposal, particularly interest rates, and they take a while to raise them,” criticizes former Monetary Policy Committee member Andrew Sentance. .
These supporters of a strict policy would like the BoE to raise its rates to curb borrowing and thus prevent inflation, fueled for the moment by rising energy prices, from triggering wage demands and sales price increases that would create an inflationary spiral. .
The strict monetary policy is not unanimous either. Unions have criticized rate hikes that drive up the cost of mortgages, and some economists question the rate hike strategy. “The relatively high rate of inflation in the UK is due to fiscal policy and Brexit” and “bringing down households by raising key rates quickly will not address the cause of inflation,” says Samuel Tombs, an economist at Pantheon Macroeconomics. According to him, the strategy of the British government, which lowered certain taxes instead of limiting the price of electricity as in France, for example, explains part of the difference in inflation between the United Kingdom and its neighbors.
Source: BFM TV
