Bank of England (BoE) quantitative easing (QE) spiked UK inflation during the COVID-19 pandemic, but the impact was difficult to predict at the time Central Bank Governor Andrew Bailey said Wednesday.
Bailey also said former Prime Ministers Liz Truss and Kwasi Kwarten’s so-called mini-budgets have damaged the UK’s reputation.
Bailey was heavily criticized for the BoE’s role in current inflation when he attended a parliamentary finance committee hearing with colleagues on the bank’s Monetary Policy Committee (MPC).
MPC panelists were asked about banks’ forecasts for the UK to enter the longest two-year recession since the Great Depression, saying the recession was not expected to be severe and could easily be lengthened or shortened. said to be sexual.
On 8 November, BoE chief economist Huw Pill said in hindsight that banks’ £450bn ($536bn) of QE in 2020 could have contributed to the 10.1% inflation seen in September. said to be sexual.
Asked about the role that pandemic QE played in inflation, Bailey replied, “QE contributed because it was meant to.”
However, when asked if Bailey acknowledged that the banks’ “very loose monetary policy” and the government’s “very loose fiscal policy” at the time had stimulated inflation, Bailey backed off the BoE’s QE decision. “Tightening monetary policy during a pandemic,” he said.
Bailey said the current inflation seen globally was the result of a “series” of supply shocks, and argued that the MPC failed to foresee Russia’s invasion of Ukraine and the tightening of the labor market.
BoE Deputy Governor Ben Broadbent, who was also present at the hearing, said one thing that “all central banks” could have been able to respond to before was “the inflationary effect of the pandemic on supply chains, for which the evidence is lacking.” In early 2021,” he said, although certain sources of inflation now appear to be peaking.
Broadbent also said shortly after banks made their final QE decisions in November 2020, inflation in 2022 is projected to average 2%, the banks’ target, while financial market forecasts are at 3%. bank target.
The National Bureau of Statistics released its latest inflation rate on Wednesday, showing 11.1% inflation in the 12 months to October.
Broadbent said the difference doesn’t mean the prediction was wrong, saying, “We live in a very uncertain world.”
Minibudget ‘damaged our reputation’
Panelists told parliamentarians that much of the market impact of September’s Truss and Quarteng mini-budget was followed by a period of market turmoil, but Bailey said the policy had damaged Britain’s reputation internationally. . It was said to have “permanent effects”.
The 23 September budget includes a two-year Energy Bill Support Package costing £65 billion ($77 billion) in the first six months, with £45 billion ($53 billion) worth of It included tax cuts and policies to encourage growth.
The announcement prompted the BoE to buy bonds and sell gilts (British government bonds) to save pension funds facing a liquidity crisis.
Markets reacted negatively because the announcement did not include the Office of Budget Responsibility’s forecast, Bailey said. £2.4 billion ($2.9 billion) savings. They questioned whether that was the right thing to do in the context of the cost of living crisis.
Bailey added that Truss and Kwarten’s “trickle-down economics” ideology, which proponents call “supply-side economics,” is “not a very big camp these days.”
When asked whether October inflation would have been higher without the Truss Energy Price Guarantee, which absorbs about two-thirds of the rise in household energy bills, Broadbent said that He said the system, which injects money and thus increases demand, has declined. In the medium term, however, it will push up inflation and put pressure on wage demand.
“In our judgment, the larger effect was on demand. So the net effect on medium-term inflation expectations was positive. And that was one of the reasons many committee members gave in their decision to raise rates. It is one,” he said.
Asked by the committee whether he would take a pay raise amid concerns over rising wage prices, Mr Bailey said he would “politely decline”.
recession
On November 3, the BoE raised the base rate to 3% to curb runaway inflation. Banks are also forecasting an eight-quarter recession, the longest since records began in the 1920s.
Bailey said the projected recession is not expected to be severe by historical standards.
Broadbent told the committee that the projected decline in the last two or three quarters is “fairly small,” meaning the length of the recession is highly uncertain.
Asked about the recent collapse of crypto exchange FTX, Bailey said he does not believe that crypto ownership in the UK is large enough to pose a systemic risk.
However, the governor added that there are more “explosions in the non-bank world”, such as cryptocurrencies and the LDI pension fund.
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Lily Zhou is an Ireland-based reporter focusing on UK news. Lily said she attended the Chinese edition of The Epoch Times for the first time before she focused on the UK in 2020.