Bank of England Gov. Andrew Bailey on Monday rejected criticism that the institution didn’t move quickly enough to quash inflationary pressures, telling a parliamentary committee that monetary policymakers weren’t able to predict wars.
Bailey has come under sharp criticism in recent months as the U.K.'s annual inflation rate soared to 7%, the highest in more than 30 years. But Bailey said it was only in hindsight that the unprecedented sequence of shocks to the economy — including Russia’s invasion of Ukraine in February and the lingering COVID-19 pandemic — could have been managed differently.
“We can’t predict things like wars – that’s not in anybody’s power,“ he told the House of Commons Treasury Committee. “I don’t think we could have done anything differently. We could not have seen a war with Ukraine. There is also a further leg of COVID, with the situation in China, which appears to be affecting the country more seriously.”
The central bank initially held off on raising interest rates when consumer prices began to rise last summer, arguing that inflation was largely due to short-term external pressures and would quickly return to the targeted level.
Inflation has accelerated steadily since July, the last time it was at or below the bank’s 2% target.
The central bank finally raised its key interest rate in December, after keeping it at a record low 0.1% for the previous 21 months. After four consecutive increases, the rate now stands at 1%.
Senior lawmakers from the governing Conservative party have lashed out at the bank in recent days, saying it should have acted more swiftly to combat inflation fueled by the rising costs of energy and food. Liam Fox, a former cabinet minister, criticized the bank ahead of Monday’s hearing.
“It is the duty of central banks to safeguard the value of our money,” Fox tweeted. “Yet the @bankofengland has persistently underestimated the inflationary threat and the problem of excess money supply. The (Commons Treasury Committee) should launch a wide-ranging investigation as a matter of urgency.”
Bailey also warned of rising consumer prices, describing food inflation as one of the bank's major worries.
“One is the risks of a further energy price shock, which would come from the cutting off of (Russian) gas and distillates, such as products like diesel,'' he said. “And then, the one which I might sound rather apocalyptic about, is food.''
The governor said that Ukraine has food in storage but can't get it out of the country, given Russian attacks.
“It is a major worry for this country and a major worry for the developing world,” Bailey said.
