Bank of England ‘too slow’ to wake up to inflation threat
Bank of England accused of being ‘too slow’ to wake up to inflation threat: Former rate setters launch new attack on Governor Bailey
The Bank of England has again come under fire for not ‘waking up’ to the threat of inflation – as JP Morgan warned it could now be forced to raise interest rates to 7 per cent.
Prominent economists, including Sir Charlie Bean and Sushil Wadhwani, themselves both former interest rate setters at the Bank, focused on the track record at a Treasury Committee hearing, which also included Nina Skero, chief executive, Center for Economics and Business Research.
Wadhwani, now an adviser to Chancellor Jeremy Hunt, said he warned a member of the rate-setting Monetary Policy Committee (MPC) in 2020 that it should look more broadly for evidence of inflationary pressures.
And Bean said central banks, including the Bank of England, the US Federal Reserve and the European Central Bank, were “too slow to face the dangers of a significant rise in inflation,” insisting that it was a transient move. nature was.
Inflation struggles: Prominent economists including Sir Charlie Bean and Sushil Wadhwani took aim at the Bank’s record at a Treasury select committee hearing
“They were certainly slow to wake up with the need to withdraw incentives,” he said. The comments came as the Treasury sold £4bn worth of bonds at the highest interest rate since 2007.
The two-year Treasury bond will provide investors with an annual return of 5.668 percent as markets demand additional returns ahead of further rate hikes from the Bank of England.
It was a stark illustration of how rising interest rates weigh on government and household finances.
Meanwhile, John Roberts, CEO of white goods company AO World, lashed out at “fantasyland economics” in response to pressure on companies not to pass on rising costs to consumers. He said, “You pass that on or you go bankrupt.”
The Bank has raised interest rates from 0.1% in December 2021 to 5% in response to high inflation, and markets are betting they will hit 6.25% this year.
That has resulted in average mortgage rates on two-year fixed deals of more than 6.5 percent and five-year deals of more than 6 percent.
That means a financial crisis for more than 2 million borrowers whose fixed-term contracts expire in 2023 or next year.
Criticism: Andrew Bailey, Governor of the Bank of England
JP Morgan economist Allan Monks suggested things could get even worse, with rising commodity prices and a tough labor market showing signs of pushing the economy “on a dangerous new path.” He said there was a high risk of a rate closer to 7 percent.
JP Morgan predicts that the Bank will opt for a ‘higher for longer’ interest rate strategy, raising the risk of a ‘hard landing’ for the economy next year.
The Bank of England and Governor Andrew Bailey have been accused of being forced to raise interest rates because they were too hesitant to begin with.
His defense is that critics speak with the benefit of hindsight and that it could not have predicted the invasion of Ukraine, which drove up energy and food prices.
Economists who attended the committee yesterday said there were warnings that the Bank was not taking inflation seriously enough.
Wadhwani said: ‘In November 2020 I had a debate with a member, where I pointed out the lack of cross-checking.
“Over the last 2-3 years I was amazed at how many ex-MPC members came out in public and loudly worried about inflation risks, but somehow the Bank wasn’t paying enough attention.
“Maybe they thought we were all old-fashioned and did economics in a primitive way.”