Andrew Bailey will face the toughest parliamentary grilling by a Bank of England governor since the global financial crisis on Monday as MPs challenge him on whether the bank has lost control of inflation.
Senior Tories have accused the BoE of moving too slowly in raising interest rates to contain inflation, which the bank said could top 10% later this year.
Bailey will appear before MPs on the Commons Treasury Committee, the forum that held former Governor Lord Mervyn King to account during the 2008-09 financial crisis, ahead of the release of inflation data for April on Wednesday, which is expected to show a another sharp price increase.
The FT last week reported growing criticism among senior Tories of the BoE’s handling of the inflation crisis, while cabinet ministers also expressed concern.
The Sunday Telegraph quoted a cabinet minister as saying of the BoE: ‘It has a job to do – to keep inflation at around 2% – and it’s hard to remember the last time it hit that target .
In fact, the BoE only last hit its inflation target in July 2021, but Bailey’s insistence that the big price increases would be “temporary” left him open to speculation. critical.
“The BoE persisted beyond any rational interpretation of the data to tell us that inflation was transitory and then peaking at 5%,” Liam Fox, a former minister, told MPs last week.
As the Conservative government comes under increasing pressure to help ease the cost-of-living crisis, the central bank – operationally independent since 1997 – braces for a wave of political criticism over its recent inflation record .
But Boris Johnson’s allies said the prime minister had not criticized the BoE and there had been no discussion among senior ministers about ending his independence. “It’s sacrosanct,” said a senior government official. “Do you really think we would want to take responsibility for rising interest rates again?”
Kwasi Kwarteng, business secretary, told the BBC that the BoE was “a great institution” and had done “a good job”, arguing that it was easy to criticize the decisions of the monetary policy committee with the recoil. He added that Bailey was “a very capable central bank governor and is doing everything he can on this issue.”
April’s inflation figures are expected to show prices rising at their fastest pace in more than 40 years. As growth stalled, Britain’s economy has not seen such a period of stagflation since the late 1970s, a period Tories have long used to point out the dangers of letting Labor run the economy .
In the April figures, the first to include the 54% jump in the price cap on household energy bills, economists expect UK consumer price inflation to reach 9.1%, the highest level in the G7. The last time CPI inflation was 9% or more was in early 1982, at a time when the Conservative government of Margaret Thatcher was deeply unpopular.
When Bailey testifies before MPs, he will appear with Deputy Governor Sir Dave Ramsden and two of the members of the External Monetary Policy Committee who voted for a bigger half-percentage-point raise earlier this month: Jonathan Haskel and Michael Saunders.
Bailey has declined to comment since the MPC meeting earlier this month, but the BoE believes the underlying inflationary problem in the UK is less acute than in the US and that the rise in prices will slow as the he economy will contract later this year.
Meanwhile, Labor will force a vote on imposing a windfall tax on North Sea oil and gas companies on Tuesday. Chancellor Rishi Sunak has left the door open for a windfall tax if oil and gas companies do not urgently announce new investments. But Kwarteng said on Sunday such a levy was “a bad idea” and would discourage investment in new energy programs.