Economists blame UK’s double-digit inflation spiral on the Bank of England’s money-printing spree

Economists yesterday blamed the Bank of England’s money printing for fueling double-digit inflation – as Britain faces another painful rate hike to try to cut rates again.

The Bank pumped £450bn into the economy to get Britain through the pandemic, but experts told MPs this helped create the price spiral it is now grappling with.

Inflation has been above 10 percent since last summer and while today’s numbers could point to a drop below that level, further rate hikes are likely to be needed before the battle is won.

Official data released yesterday showed stronger-than-expected wage growth of 6.6 percent, boosting market expectations that rates will rise 0.25 percent next month to 4.5 percent.

Andrew Sentance, a former Bank of England rate fixer, meanwhile, told MPs that the bank’s long period of money printing, or quantitative easing (QE) policies, and low interest rates “have contributed quite significantly to the inflation we are now experiencing.” ‘.

During the bank’s QE wave in 2020 and 2021, it created electronic money to buy bonds.

It added to previous QE boosts dating back to the 2009 financial crisis, pushing the total amount of asset purchases under the scheme to a high of £895bn – an amount the bank has only surpassed in recent months. phasing out.

Sentance told the Commons Treasury committee: “It seemed the QE was taking too long. There was too much of it in the pandemic period.

“We had more than double the amount of QE during the pandemic and it wasn’t clear if that was quite the right policy.”

Sentance said this contributed to the “extended period of extremely low interest rates and further injections of QE” in the aftermath of the financial crisis.

“All of that I think over time has contributed to the inflationary pressures we’re seeing now,” he added.

Gerard Lyons, chief economic strategist at Netwealth and former adviser to Boris Johnson, said: “I think it included inflationary pressures and I thought it was the wrong approach.”

Katharine Neiss, chief European economist at PGIM Fixed Income, told MPs: “QE is designed… to ease financial conditions, support the real economy and thereby drive up inflation.

Jeremy Hunt (pictured yesterday) has paraded the Office for Budget Responsibility (OBR) projections that inflation will fall to 2.9 percent by the end of this year

And it has undoubtedly contributed to the inflation that we’ve seen in recent years.

‘But there is much more going on, not least higher energy prices.’

The comments are the latest evidence to suggest that the Bank’s own policies are themselves partly responsible for long-term cost-of-living pressures in Britain.

Now it is causing even more pain by raising interest rates to try and bring inflation down.

Bank interest rates have risen sharply from 0.1 percent in December to 4.25 percent today, hurting millions of mortgage holders and business borrowers.

Rising prices and higher borrowing costs were among the factors responsible for the sharp rise in the number of companies going bankrupt last month.

Government figures published yesterday showed there were 2,457 business insolvencies in March, 38 percent more than the previous month and the highest level since the beginning of 2019.

Elsewhere, the picture painted by employment and wage data published by the Office for National Statistics (ONS) was more mixed.

The healthy-looking 6.6 percent increase in average income – in the three months to February – was lower than inflation, so in real terms it meant a wage cut.

There was a big increase in the total number of jobs – which rose by 169,000, much better than the 50,000 economists had expected.

This was helped by a sharp drop in worrying levels of economic inactivity – people out of work and not looking for a job – mainly caused by young people.

Unemployment rose slightly from 3.7 percent to 3.8 percent, but remains at a historically low level.

The number of vacancies fell for the ninth month in a row, also a possible sign of a cooling of the labor market.

At 1.1 million, however, the number of vacancies remains much higher than in recent years.

The figures will be closely monitored by the Bank of England ahead of the next interest rate decision in May.

Rate setters may worry that signs of higher wages will cause a spiral of rising prices to take root in the economy.

After the latest employment figures, financial markets were betting on an 80 percent chance of an interest rate hike from a quarter of a percentage point in May to 4.5 percent.

And traders also usually think that the bank will go further and raise the bank rate to 4.75 percent next month.