UK, all tensions between the Tories and the Bank of England on inflation
Here's how the inflation and rising cost of living controversies continue in the UK. The article by Daniele Meloni
The controversy over inflation and the rising cost of living in London continues. The Bank of England (BoE), and, in particular, its Governor, Andrew Bailey, who came under pressure from the Treasury Committee, the Finance Committee of the House of Commons, is in the sights of the Tory government and deputies, just last Tuesday.
The criticism of Bailey was initiated by the President of the Commission, Tory Mel Stride, whom he called the powerful governor "asleep at the wheel", while inflation reached 7% in March and, in anticipation, on the 10th. % in the next months. Figures well over 2% which represents the BoE's annual target. Recently, Threadneedle Street's Monetary Policy Committee (MPC) raised interest rates for the fourth consecutive time since December 2021, from 0.75% to 1%, their highest level since 2009. Growth figures are also not. encouraging: the MPC expects a contraction in the last quarter of 2022, and of 0.25% in 2023 when the expected growth was just 1.25%. The risk of a technical recession for the UK seems real.
The Bank of England is celebrating the 25th anniversary of its independence this year, which came in 1997 thanks to the decision of Gordon Brown – then Chancellor of the Exchequer – and his prince advisor, Ed Balls, to detach it from the Treasury with the statutory faculty. to set interest rates independently. It was the move that allowed New Labor to conquer the City and the markets, proving the reliability of their operators. They appreciated the government's choice to leave the freedom to decide rates to an MPC headed by a Governor and to set inflation targets (first at 2.5%, then reduced to 2%).
But the friction between politics and the country's major monetary authority did not stop, however. Already the then governor, Eddie George, threatened to resign when Brown revealed that he wanted to remove the responsibility of regulating the financial sector from the Bank. His successor, Mervyn King, was reprimanded by Brown himself who called his criticisms of the government's public spending policies "disastrous". Mark Carney found himself caught in the middle of the Tories' blue on blue fight in the Brexit referendum and with the Brexiteers who accused him, not entirely wrongly, of engaging in economic terrorism in the event of the country leaving the European Union.
Andrew Bailey is a very different type of banker from his predecessor. She's not Canadian, she doesn't have great communication skills, and she's done her way through the BoE. Before being appointed governor, he was vice-governor, and before that, head of the FCA, the Financial Conduct Authority, the body that regulates the City of London.
He was chosen in March 2020 by the current Chancellor of the Exchequer, Rishi Sunak, a month after the latter's appointment at 11 Downing Street. The main actions of his mandate were the reduction of rates to 0.1% before the lockdown and the billions of pounds injected into the economy through quantitative easing. He also collaborated with Sunak and the Treasury technicians on the furlough plan and loan bailout schemes worth £ 170 billion. Nothing compared to the Biden Administration's stimulus ($ 1.9 trillion), but enough to support the British economy during the pandemic.
How did Bailey defend himself, then, from the accusations of having "fallen asleep" while inflation and the high cost of living are emptying the pockets of the British? The Governor told the Commission that the current situation "is a bad situation to be in" and that "80% of inflation is generated by rising energy prices and trade". Certainly the war in Ukraine and the lockdowns in China have made things worse, but could not more decisive measures be taken to safeguard the purchasing power of families?
Bailey made it clear that on this the ball passes to the Johnson government – still uncertain about what measures to take to protect the social groups most affected by the crisis – and that for him "the independence of the BoE is an essential value". It is likely that the controversy and the blame will continue in the coming days and months. Let's see if only the British will pay or even the Tories at the polls. What about Threadneedle Street? For the moment, a replacement for Bailey seems a long way off.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/uk-tutte-le-tensioni-tra-tories-e-bank-of-england-sullinflazione/ on Mon, 23 May 2022 08:41:59 +0000.