Senior economists and an influential MP have demanded a major parliamentary inquiry into the Bank of England’s spectacular failure to predict soaring inflation. Bank Governor Andrew Bailey’s £575,000-ayear job could be on the line if he is found to have been ‘asleep at the wheel’ for not spotting the escalating cost-of-living crisis, one added.
Bailey has come under mounting pressure to explain why the Bank didn’t raise interest rates sooner and faster. That was despite warnings more than a year ago from the likes of former Governor Lord King that inflation – dormant for a decade – would roar back into life as the economy emerged from the pandemic.
Covid-related supply chain disruption and rocketing energy costs following Russia’s invasion of Ukraine have fuelled the fastest rise in prices in 40 years.
The increase in the cost of living, as measured by the Consumer Prices Index, has shot up to 9.1 per cent a year – way above the Bank’s official 2 per cent target.
Meanwhile, the rise in the previous measure of inflation, the Retail Price Index, is even higher at 11.7 per cent a year.
In response, the Bank’s rate-setting Monetary Policy Committee (MPC) has jacked up the cost of borrowing five times since December last year, from 0.1 per cent to 1.25 per cent. The City now expects the benchmark base rate to hit 3 per cent by the end of the year.
But for many, that has come too late. Doug McWilliams, deputy chairman of the Centre for Economic and Business Research consultancy, said Parliament must now investigate why and how the Bank failed to see the crisis coming.
‘We need to find out why – when others haven’t been too far out in their inflation forecasts – it has been consistently so far behind the curve,’ he told The Mail on Sunday. He blames ‘the arrogance of official economic policymakers’ and ‘groupthink’ within the MPC.
‘I’m blue from trying to persuade the Treasury and Bank of England to listen to a wider selection of views. There’s diversity of everything except views,’ he said, adding Bailey should be asked to resign if the Bank was found ‘culpable’ for its inflation forecast failure. Kevin Hollinrake, a Conservative member of the parliamentary cross-party Treasury Select Committee, last night supported the call for an inquiry.
‘I’d be in favour of that,’ he said. ‘There are specific UK issues regarding inflation which we’ve raised with Andrew Bailey several times. We’ll want to have a more in-depth look when we have more facts but there’s mounting evidence the Bank was asleep at the wheel.’