Camilla Tominey
It’s hard to decide which is most offensive: former Bank of England governor Mark Carney blaming Britain’s world-leading rate of inflation on Brexit or his successor Andrew Bailey suggesting that it has been caused by “unsustainable” wage increases. In a typically egotistical bout of told-you-so-ing, Carney opined this week: “We [the Bank] laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth. And the central bank will need to lean against that.
“Now that’s exactly what’s happened. It’s happened in coincidence with other factors, but it is a unique aspect of the economic adjustment that’s going on here.” While Brexit may have played a small part in our stubbornly high inflation, does Carney seriously think we are going to overlook the fact that he was a governor who presided over the ultra low interest rates that helped to precipitate this crisis, along with the Bank’s reckless quantitative easing (QE) programme? And what is Bailey’s excuse for not only failing to heed multiple warnings that inflation was going to surge rapidly post-pandemic, but also for taking the catastrophic decision to continue QE beyond even Carney’s Monopoly-style levels of money printing?
You do not have to be an economist to work out that the Bank’s completely cavalier approach to monetary policy, combined with keeping interest rates too low for too long, has contributed to this mess on arguably a far greater scale than the war in Ukraine or other international factors. That’s why Britain’s inflation rate is stuck at 8.7 per cent and why core inflation continues to rise here but not in other parts of the world. What we learned this week is that we’re increasingly isolated. Other countries are taming inflation, but not us. The Bank clearly thinks we’re stuffed, and for good reason: we’re fast becoming the West’s inflation monster.
Theresa May joked about Jeremy Corbyn’s “magic money tree” – seemingly oblivious to the fact there was a whole forest of them planted on Threadneedle Street. Want a £500,000 mortgage on a £1million house at low interest? Here you go, said commercial banks, taking their lead from the central bank. Fancy a low interest business loan? Knock yourself out! And when interest rates go in the only direction they possibly can when they’ve been stuck near zero for more than a decade? Ah, we’ll cross that bridge when it comes to it.
Little wonder, then, that successive governments have sought to so liberally splash taxpayers’ cash. Since the 2008 global financial crash, a mindset appears to have set in that the solution to all our economic woes is “free” money – when actually that has been the root cause of many of our economic ills.
The great myth that the Government can pay for whatever it wants has finally been destroyed, and as is ever the case when arrogant “institutions” that claim to know best cock things up, it is the people who pay their wages who truly suffer. What makes matters even worse, however, is that we’ve now been conditioned into thinking these same institutions will bail us out. In this, we are arguably as much to blame as the Bank. Just as Carney and co have profligately printed money and willingly financed our cheap debt, so too have we developed a dangerous dependency on the state stepping in when the economy hits the buffers.
After having our pockets stuffed with furlough cash during lockdown, we deluded ourselves that we are living in a rich country that can afford to cover our losses. We doubled down on this fantasy when our energy bills were subsidised. What’s another £70?billion on an energy support package when you’ve already spent the same amount paying a million people’s wages for months on end?
Few thought to question at the time whether paying people to sit at home and do nothing was actually a colossal waste of money guaranteed to have catastrophic economic consequences. Billions were thrown around like confetti, with those making the decisions seemingly losing sight of the fact that, for the same amount of money, we could have reduced crime or enjoyed massive tax cuts.
And to think some people still complained that the furlough money wasn’t enough, or that it wasn’t sufficient for the Treasury to increase child benefits and pensions in line with inflation, at 10 per cent. Wages rose, even though more people were working from home, but it was all an illusion. All the time we were sitting on a debt mountain that is now on the verge of an avalanche. Again, shouldn’t we all have known better? If we were really honest with ourselves, we would admit that some of us have been reckless with our mortgages in the misguided belief that interest rates would stay low and that house prices would keep on going up, forever. True, the Bank did little to disabuse us of that fallacy by lulling us into a false sense of security, but deep down, we all knew it was a ticking time bomb, waiting to explode.
This week we also learned that government debt has risen above 100 per cent of GDP for the first time since 1961. How on earth can that really be a surprise to anyone when, at every turn, the expectation has been for the Government to stump up money it doesn’t even have?
We have also shown a casual disregard for the concept of living within our means, taking out huge loans to finance shiny new cars every three years and putting all our online spending on buy-now-pay-later schemes. This, too, has fooled us into thinking we are richer than we are. The harsh truth is that we are a poor country now, not just with rising core inflation and interest rates, but also the soon-to-be highest tax burden since the Second World War.
Such is our addiction to having everything we want, when we want it, that some now expect to be helped with their spiralling mortgage costs. The fiscally incontinent Liberal Democrats are talking about mortgage bailouts, as if it is the role of the state to underwrite or directly compensate anyone who is disadvantaged by events. Meanwhile we’ve got the Left criticising “cuts” and calling for public sector pay rises, seemingly oblivious to the fact that even this supposedly Right-wing Government has managed to blow the budget. Any rescue package would result in renters having to subsidise the very people whose booming house prices have prevented them from getting on the ladder in the first place. It would leave us in a perverse situation of the have-nots propping up the haves.
The Telegraph
