Bank of England governor Andrew Bailey has rejected claims from Conservative MPs that the UK’s central bank acted too slowly to tackle surging inflation and defended its operational independence and mandate.
Asked on Friday about whether he would remain in post no matter what changes were implemented by the successor to outgoing prime minister Boris Johnson, Bailey told BBC Radio 4’s Today programme: “I made a commitment, it’s an eight-year term and that’s part of the fabric of the independence of the Bank of England.”
He added: “Central bank independence is critically important in our view. Our job is to get inflation back down to target.”
Bailey has come under growing criticism since inflation rose to a 40-year high of 9.4 per cent in June. In response, the BoE on Thursday increased interest rates by 0.5 percentage points to 1.75 per cent, the largest increase in 27 years.
It also revised upwards its inflation forecasts, saying it would reach 13 per cent by December, and predicted that the economy would enter a prolonged recession at the end of this year.
Attorney-general Suella Braverman, a key ally of Tory leadership contender Liz Truss, told Sky News that if she became PM the foreign secretary would look at whether the BoE was “fit for purpose in terms of its entire exclusionary independence over interest rates”.
Bailey argued that the independence of the BoE was not really in question.
“I don’t think when you look there is a large desire in this country to question central bank independence,” he said. “I am very happy to discuss with the new government the details and the nature of the regime that is in place, how it works, and how the BoE operators and how we are accountable,” he added.
Bailey rejected accusations that the BoE was slow in raising rates, saying that before December the uncertainty over the more than 1mn people still on furlough schemes meant a rate increase risked derailing the UK’s fragile post-pandemic economic recovery.
To those arguing interest rates should have increased earlier, Bailey said: “I’m sorry, I don’t agree with that point.”
Instead, he said that “what has happened is there has been a series of big supply side shocks, most of which were outside”.
“I would challenge anybody to be sitting here two years ago saying ‘There is going to be a war in Ukraine’,” he added.
He reiterated that while the majority of inflationary pressure was the result of surging gas prices following Russia’s invasion of Ukraine, raising rates was necessary to prevent high inflation from becoming embedded.
“If everybody tried to beat [inflation], it doesn’t come down, it gets worse. . . in that world it is the people least well off who are worst affected. That is something we all have to be very very aware of,” said Bailey.
He also disregarded accusations that excess quantitative easing caused the historically high inflation, saying: “If that was what was causing inflation today, then it would be the case in my view that domestic demand in this country would be much stronger than it is.”