London (AFP)
The Bank of England is under fire from the government, economists and former officials of the monetary establishment, accusing the central bank of inaction, which led to the highest inflation level for the Group of Seven.
Inflation has exceeded 10% in the UK, a level unprecedented in 40 years and far from the Bank’s 2% target.
Inflation is expected to rise further in the coming months, reaching 13%, according to the Bank of England, causing a purchasing power crisis that threatens to plunge many families into poverty.
“It is clear that a mistake has been made,” said Kwasi Kwarting, Minister of Enterprise and Industry, in an interview with Sky News. “Interest rates should have been raised earlier,” he added.
criticism of the central bank
Criticisms echoed in the message of the front-runner in the polls to succeed Boris Johnson in Downing Street, as Liz Truss proposed a review of the Bank of England, whose independence dates back to 1997. To these criticisms, Bank of England Governor Andrew Bailey adopted a cautious response, emphasizing that he did not want to intervene. In Conservative debates, even if it is stated that the credibility of the UK’s financial institution hinges on the independence of its central bank.
He also mentioned that the Bank of England will raise interest rates from the end of 2021, that is, before the US Federal Reserve or the European Central Bank.
Inflation slowed slightly in July in the US to 8.5% in one year and reached a new record in the Eurozone at 8.9%.
energy crisis
Like the European Union, the UK suffers from the energy crisis caused by the Russo-Ukrainian war, but also by the disruption of supply chains and labor shortages exacerbated by Brexit. But Bailey says a faster rise would have occurred with the resurgence of Covid-19 infections, even if the mutant or micron did not lead to the imposition of harsh new isolation measures.
“It is true that inflation is high this year, but the message is the same: In eight centuries of independence, the best way to have moderate and stable inflation is,” Monetary Committee member Jonathan Haskell said on Twitter. He attached his letter with a table that showed that the average inflation between 1997 and 2022 amounted to regarding 2%.
interest rates
But the critical comments are not limited to the Conservative Party, with former Bank of England officials saying larger increases earlier, when Britain’s growth rate was stronger, would have avoided a prolonged painful tightening.
Andrew Sentance, a former member of the Monetary Policy Committee, declared that the Bank of England “does not have an easy task at the moment, but it has tools at its disposal, especially interest rates, and the Bank is a bit slow to raise them.”
“We’ve been too slow to see the train coming out of the tunnel, a lot of people have been affected, and now we have to deal with the consequences,” said Stuart Rose, president of the Asda supermarket chain and a Conservative member of the House of Lords.
Despite his assertion that the priority should be “eliminating inflation” rather than stimulating growth, his harshest criticism was directed at Trass, whom he accused of wanting to “distribute money everywhere”, which also leads to an increase in inflation.
Get out of the crisis
“The relatively high rate of inflation in the UK is due to budgetary policy and Brexit,” says Samuel Toms, an economist at Pantheon Macroeconomics. He believed that “confusing families by quickly raising key interest rates will not address the cause of inflation.” In his opinion, the British government’s strategy of lowering some taxes rather than reducing the price of electricity, as in France, for example, explains part of the difference in inflation between the UK and its neighbours.
