Mervyn King criticizes Bank of England’s approach amid livelihood crisis
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Former Bank of England governor Mervyn King has criticized his approach amid the crisis of livelihood, calling for a hike in interest rates to show “strong, clear signs”.
Lord King said central banks, including the UK, made “serious mistakes in not acting soon” while speaking out against the policy of quantitative easing during the pandemic.
And the colleague questioned current Governor Andrew Bailey’s suggestion that 80% of inflation is due to external forces such as global energy and food growth, calling it a “debatable figure”.
The criticism came as new data from the Office for National Statistics to be published on Wednesday expected inflation to hit 9.1% year over year in April.
The idea that interest rates of 1% are going to have a huge impact on the inflation rate is actually pretty strange.
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As energy prices rose that month, consumer price index (CPI) data is expected to give a clearer display of the scale of the crisis.
Experts agree that the authorities setting interest rates at the Bank of England may need to act once the figures are hit.
Lord King, who was governor during the 2008 financial crisis, told LBC radio: “I think the big challenge is to demonstrate that they need to give a very strong signal now that they are looking to bring inflation down.” Concentrating. Down.”
Asked if he meant there needs to be a substantial increase in interest rates, he said: “The sooner this is done the less it could be, but my concern would be if you postpone it and much more.” Slowly creep in, you end up in a situation where from now on people are saying that interest rates need to go up.”
He pointed to the bank’s estimate that inflation will rise by more than 10% this year, adding: “The idea that interest rates of 1% are going to have a huge impact on inflation rates is very strange indeed.”
Lord King said it was “predictable” that inflation would be caused by the coronavirus response to quantitative easing, or the introduction of new money into the system by the central bank.
The problem was that the central banks also printed a lot of money and it was not needed … it put a lot of money in the system
“All central banks have fallen prey to two serious errors. The first is that when the pandemic hit, governments stepped in and pumped a lot of money into furlough schemes or increasing unemployment benefits. He was very wise,” said Lord King.
“The problem was that the central banks also printed a lot of money and didn’t need it … it put a lot of money in the system.
“It’s an idea that we adopted at the end of the financial crisis, when we were trying to stop the amount of money in the economy from falling. What happened this time was that it grew very fast… and it was a It was a mistake because the pandemic reduced the supply of the economy. And there was too much money chasing too few goods…”
Lord King, who stepped down as governor in 2013, said: “And I think central banks around the world have made serious mistakes in not acting very quickly … including us.”
