Bailey bats away claims Bank of England has fuelled inflation 

Governor of the Bank of England Andrew Bailey today snapped back at criticism he and the central bank’s committee of rate setters have fuelled inflation in the UK.

The governor dismissed accusations the Bank has contributed to the current living cost spike by over-flooding the UK economy with money during the Covid-19 crisis.

“What I reject is the argument that in our response to Covid the Bank’s monetary policy committee let demand get out of hand and thus stoked inflation,” he said.

Former Bank chief Lord Mervyn King last week said the monetary authority should have curbed its pandemic money printing programme sooner and that interest rates may need to rise quickly and steeply to tame rising living costs.

Conservative MPs have also questioned the Bank’s decision making. 

The Office for National Statistics last week said inflation scaled to nine per cent in April, its steepest rate since 1982.

Threadneedle Street expects inflation to top 10 per cent after the summer due to the energy watchdog hoisting the cap on bills again to account for higher oil and gas prices caused by Russia’s invasion of Ukraine.

Quantitative easing (QE) fuels demand by increasing the amount of money circulating in an economy and lowering market interest rates. Critics of the policy tool argue it creates economic imbalances that stoke inflation.

The Bank launched an emergency package of QE in March 2020 in response to the pandemic to cushion its economic impact. It also cut rates to a record low 0.1 per cent, keeping them there until last December.

It has bought hundreds of billions of pounds of government and corporate debt, but recently told staff to draw up a plan to start selling these assets.

Its decision to delay reining in stimulus in the second half of last year has been thrown into sharp relief due to inflation reaching its highest level since the Bank was made independent 25 years ago.

Bailey said the Bank is “prepared” to “take the actions needed to return inflation to target over a period that avoids unnecessary volatility in the economy”.

Threadneedle Street has already raised rates at each of its last four meetings, taking them to a 13-year high of one per cent. They are still low by historical standards.