Today, the governor of the Bank of England retaliated against Tory leadership hopeful Tom Tugendhat for his assertion that the inflation crisis is the result of Threadneedle Street’s monetary policy.
Andrew Bailey made an appearance before lawmakers in an effort to stay away from the ongoing contest for the Conservative Party’s leadership and the flurry of tax cuts that rival candidates were promising.
But he emphasized that he did not “subscribe to the view” that the current high inflation rate is the result of quantitative easing (QE) during the Covid crisis. This was a dig at Mr. Tugendhat.
In addition, Mr. Bailey warned would-be prime ministers that he would fight to preserve the Bank’s independence.
As inflation rates continue to soar during the cost-of-living crisis, there have been recent rumblings about the Bank’s future, with questions being raised about its independence.
Although the official goal of Threadneedle Street is to manage inflation at 2%, the current CPI rate is 9.1% and is expected to go as high as 11% later this year.
When questioned if he concerned that debate might adopt a culture of bank criticism, the governor stressed that “central bank independence” is the “cornerstone of economic policy.”
In his campaign to become prime minister, Mr. Tugendhat, a prominent Tory backbencher, stated this morning that he wants to “take the brakes off” the economy.
In an interview with BBC Radio 4’s Today program, he attributed the rise in inflation to the Bank’s injection of fresh cash into the economy, which he called a “sugar high of growth.”
Mr. Tugendhat claimed that the absence of sound money was what was causing the inflation.
We haven’t been sufficiently controlling our own money supply, which is what we currently have.
“I’m afraid that the quantitative easing that has been boosting the economy and inflating a sugar high of growth in various ways has really resulted in us lowering the cost of money,” the speaker said.
“And the inflation was brought on by that.” If you look around the world, you will notice that Switzerland and other nations have not experienced this inflationary trend because they have not adopted the same policies.
“Other nations have.” The globe has a serious problem with inflation.
But in his remarks to the Treasury Committee of the House of Commons this afternoon, Mr. Bailey disregarded Mr. Tugendhat’s critique of the Bank’s monetary policy.
I’m afraid I don’t subscribe to the concept that QE is accountable, as a general issue, since it’s certainly a point that gets raised, he told MPs.
“If that were the case, I believe that domestic demand in this country would be considerably higher than it is.”
However, I won’t participate in that discussion.
Rushanara Ali of Labour questioned Mr. Bailey on the “corrosive effect” of people challenging the independence of the Bank in light of the current economic difficulties.
It’s a really severe matter, he said in response.
“All I would reiterate is that I will not participate in the discussion about who should lead the Conservative Party; that’s not for me.
It is undoubtedly a serious matter, and I sincerely hope that everyone is aware of how crucial central bank independence is.
The reality that, as I’ve stated numerous times before, given the pressures we’re under, this is the moment where the independence and the bank must do out their duties.
And we are working like we should.
I’m just going to argue that people need to appreciate how crucial central bank independence is as a tenet of economic policy, he continued.
It’s not just in this country; it is, of course, now present in a number of other nations as well.
Ms. Ali challenged the Governor on whether he was concerned that the Bank would end up being used as a “political football” in the race for the Tory leadership.
I won’t be voting in the election of the Conservative Party leader, Mr. Bailey declared.
“I would simply like to add that I think Parliament is an important bulwark in terms of institutions in the country, that is public institutions.”