…By Henry George for TDPel Media.
Ben Broadbent, Deputy Governor for Monetary Policy at the Bank of England, has dismissed the idea that the current inflation crisis in the UK is the result of the growth in household bank balances during the COVID-19 pandemic.
Broadbent made his comments at the National Institute of Economic and Social Research.
He pointed out that, despite lockdown measures resulting in households saving more money, consumer spending growth over the following year, once restrictions were lifted, was weaker than expected.
Additionally, a pure, money-driven inflation would affect all prices equally, which has not been the case in the UK.
Instead, Broadbent attributes the cost-of-living crisis to supply chain disruptions in the later pandemic era, combined with the impact of Russia’s invasion of Ukraine.
Broadbent also dismissed the idea that inflation was the inevitable result of quantitative easing, as growth in broad money supply can also be driven by commercial banks.
According to the UK’s Office for National Statistics, the inflation rate currently stands at 10.1% following back-to-back months of price rises that exceeded economists’ predictions.
Commentary:
Broadbent’s remarks challenge the notion that the current inflation crisis is the inevitable result of measures taken by the government to prop up the economy during the pandemic, such as furlough schemes and increased household savings.
While this may have contributed to the growth of the broad money supply, Broadbent argues that it does not explain the patterns of price rises seen in the UK.
Instead, supply chain disruptions and global events like Russia’s invasion of Ukraine are seen as the key drivers of inflation.
The current inflation rate in the UK is significantly higher than the Bank of England’s 2% target, which could lead to policy changes in the future.