Senior Conservative MPs have launched an attack on the Bank of England over its handling of inflation, in a rare political critique of the central bank’s core way of working.
Boris Johnson’s party is feeling the political heat as cost of living crisis Now some Conservative MPs are accusing the Bank of England, which has operated independently for 25 years, of losing control of prices.
Former cabinet minister Liam Fox told the House of Commons that the Bank of England “has been underestimating” the threat of rising inflation, which it fears could rise above 10% later this year.
“The BoE insists on any rational interpretation of the data telling us that inflation is short-lived and will then peak at 5%,” he said.
Fox said the House of Commons Treasury Select Committee should launch an inquiry into the way the central bank handles inflation. His comments reflected growing anger at the Bank of England from Conservative MPs.
A government member said the BoE was “completely wrong in every moment of this crisis” and it should have “clearly” tightened monetary policy earlier.
BoE Governor Andrew Bailey said inflation would be temporary and “every fund manager in the City of London knows it’s not true”, the person added.
Meanwhile, former Conservative finance minister Robert Jenrick told the FT: “The Bank of England missed its chance to control inflation last year, thinking that when it was clear to many of us that inflation would be high, it would be Mild and ephemeral. And long-lasting.
“We are now in danger of entering a new era of inflation. With too little action too late, there is a risk of overcompensation if it pursues further sharp rate hikes.”
In the 25 years since the central bank gained independence to set interest rates, direct criticism of the Bank of England’s core mandate to control inflation from ruling party lawmakers has been all but unheard of.
Chancellors of the Exchequer, from Alistair Darling to Rishi Sunak, have been taking the Bank of England governor seriously for what happens when inflation is too high or too low And an explanation of how to bring inflation back to the 2% target.
The Chancellor of the Exchequer wrote in a recent open letter to Bailey that he agreed with the Bank of England’s assessment that high inflation is largely the result of global factors and the consequences of the coronavirus pandemic.
But there is a nervousness within the Bank of England that the Bank of England will be under unprecedented pressure as inflation heads towards double digits and a sharp jump in April data due next week is expected.
Further tensions between the Bank of England and MPs are likely to surface when the governor will be cross-examined by a Treasury committee in the House of Commons next Monday.
Jajit Chadha, director of the National Institute for Economic and Social Research, said: “It’s a bit unfair to blame the Bank of England for the inflation problems we’ve seen, many of which are the result of the necessary stimulus measures triggered by the coronavirus pandemic.”
But until last year, Bank of England chief economist Andy Haldane told LBC this week: “I wish we had done more to tighten policy earlier, so there wasn’t as much money chasing as many commodities.”
The Bank of England declined to comment.