As the Guardian notes this morning:
Britons should expect to suffer a more severe bout of inflation than other major economies during the current energy crisis, the governor of the Bank of England has warned.
Speaking at a conference of central bankers in Portugal, Andrew Bailey said inflation was higher in the UK and would persist for longer than previously expected as soaring petrol and gas prices sent household bills rocketing to new highs.
Bailey said he was determined to bring down inflation and was prepared to use the Bank's power to increase interest rates aggressively in response, though he added that it may not be necessary if price growth slowed towards the end of the year.
Contextually they noted:
His comments came as leaders of the world's most powerful central banks warned that the global economy is facing a new period of persistently high inflation, unleashed by the coronavirus pandemic after decades of stability.
All of which sounds profoundly depressing. But the questions to ask are whether Bailey is right and is what he says will happen actually necessary?
In the sense that Bailey is right if his chosen policy is pursued then I cannot argue with his conclusion. If, as he plans, the UK economy will have its life crushed out of it by unnecessary interest rate rises then of course recession will follow, as will personal hardship and misery for millions. As that is what he unashamedly plans then Bailey is not so much forecasting, as stating that this is his intention.
And if the government persists with Brexit; wishes to wage trade war with Europe; refuses to change the rules on energy pricing so that falling prices are denied to consumers and energy is priced at the highest possible price that the weakest market supplier says is necessary for its survival, then of course the government is also guaranteeing this outcome.
As it is also doing by already backtracking on windfall taxes and by its refusal to increase taxes on the wealthy, who are the only part of society exerting demand pull inflationary pressures right now.
Come to that, the governments refusal to use the indirect tax levers available to it to actually reduce inflation by cutting VAT and duty rates also guarantees we will do worse than those countries who are actually trying to curtail inflation. So Bailey is right again: things will be bad here.n
But as to necessity, Bailey is hopelessly wrong. There is nothing inevitable about what is happening in the UK. It has been chosen that things should be this way.
What is more, even though it is obvious that we are heading for recession, rising unemployment and under-used resources in the economy, there is no plan to do anything about this. The government should be designing a recovery package at this moment. Let us call it a Green New Deal. It is not planning that. So of course things will last longer than they need to in the UK: the exit route is not being prepared.
It's easy for Bailey to be right. He just has to act with malice to impose interest rate rises and make no demand for a fiscal response from government. But being right is, in this case, to be profoundly wrong. And Bailey most definitely is that.
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Richard, I’m always interested in your views and equally am not optimistic about Mr Bailey being an effective Governor of the Bank of England (years of Private Eye opprobrium has perhaps jaundiced my view of his abilities).
I can see that we have underused resources in the economy that need to be exercised but am struggling to see the rising unemployment given we are currently , even with this high inflation , at unemployment’s lowest level since the ’70s? Thanks.
The unemployment data is grossly misleading
Many people are on 16 hours a week jobs for benefit reasons
There is significant disguised self employment
Much of the data from small businesses is simply guessed
As new graduates tell me – finding a shit job is easy – finding one with training very hard
In summary, we have massive disguised under employment
Thank you for that explanation. The ‘working and on benefits’ is particularly apparent. Yesterday, the starting gun was sounded on a new run at Scottish Independence. I hope that the sovereign nation that might ultimately come about and the Governor of its bank has more smarts than that currently on show in the BofE. Do banks breed economically Keynesian , more socially democratic bankers?
All the best.
Andrew Bailey is a disaster isn’t he?
Paid well to talk tripe.
Heh… just check out his Nelsonian activities while at the FCA. in my view, Bailey’s been an Establishment stooge for many years, usefully looking the other way while Treasury-condoned banks looted from and destroyed thousands of SMEs, those with assets which could be sold off at a handsome profit. A form of civil war seems to be breaking out at the FCA at the moment, conscientious staff being downgraded, fired, rehired while corrupt Establishment stooges are running the place into the ground, reducing its effectiveness even further. The rot continues.
Is there anybody in government or the BoE who can see what’s happening or is it truly a case that they all just don’t care and will always follow the money?
How is it they still can’t see the recession is coming, do they ever look out and talk to real people and businesses?
You’re absolutely spot on and have been for some time, inflation could be reduced with Government intervention on fuel and energy and that we’re effectively in recession already regardless of what OBR figures say.
The thing is Stuart dealing with 2008 made it clear that banks can print money.
All this bullshit from people like Bailey is hoping to throw us off the scent.
A central bank reserve account full of cash so that the bankers can play; but austerity and ‘tough luck’ for the rest of us.
They know what they are doing all right. It’s a big lie. Finance has captured the sovereign money supply for its own ends.
We have to believe sooner or later that people will realise this. And that includes our politicians.