Bank governor defends inflation record as Truss review awaits
Andrew Bailey has defended the Bank of England’s record of managing inflation under his command amid growing pressure on the governor in the first week of Liz Truss’s premiership.
The new prime minister promised a review of the Bank’s mandate during the Conservative leadership race, underlining frustration with Bailey and Threadneedle Street’s response to inflation at the highest levels for 40 years.
Analysts at Goldman Sachs have warned of “potential personnel changes” at the Bank, speculating that Bailey’s eight-year term could be halved – meaning a new appointment in March 2024.
Speaking to MPs on the Commons Treasury committee, Bailey said a formal review would be welcomed as a “sensible and good thing to do”, but that Russia’s invasion of Ukraine was responsible for the huge inflation shock hitting Britain and had left the central bank with limited tools in response.
“The person who is going to put this economy into recession is Vladimir Putin, not the MPC [Monetary Policy Committee],” he said. “By far the largest contribution to this [inflation shock] is the war. That’s not something that is, I’m afraid, within the remit of monetary policy.”
With the annual rise in the cost of living now at five times the Bank’s 2% target, Bailey dismissed suggestions that the inflation-targeting regime used since Gordon Brown gave the Bank independence to set interest rates 25 years ago was no longer fit for purpose.
He said: “This is by far the biggest shock we are facing during the life of that, but it does not suggest that the regime has failed. What it suggests is that the regime now has to do its work and respond to a much bigger shock and we are confident that it will do so.”
Last month the Bank forecast inflation above 13% this
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