Bank of England is falling victim to ‘left-wing view of inflation’ and they could trigger a recession if they continue to raise interest rates, ex-boss warns
- Mervyn King said bankers didn’t consider printing money would spike inflation
A former Bank of England governor has accused his successors of falling victim to a ‘Left-wing view of inflation’ and warned they could trigger a recession by continuing to raise interest rates.
Mervyn King, who led the Bank for a decade until 2013, said it had made a mistake by not considering that the vast amounts of money printed during the pandemic would fuel inflation despite predictions from economists.
He claimed central bankers had ‘all been trained to believe the same thing’ and that not considering whether printing more money would cause inflation was ‘very odd’.
He said: ‘The big mistake is to think money has absolutely nothing to do with inflation. This is a very odd viewpoint because inflation is a fall in the value of money.
‘You would think the amount of money that central banks print would have something to do with inflation. History tells us if you print enough money, you will get inflation.
Ex Bank of England governor Mervyn King accused his successors of falling victim to a ‘left-wing view of inflation’
Mr King (pictured at Wimbledon) said that the Bank should have considered printing money would spike inflation
‘In the 1980s, the relationship between the amount of money in the economy and inflation didn’t seem very stable. It moved around. That was because there was a good deal of financial deregulation. But it was also political that people like [economist] Milton Friedman in the US were seen as very Right-wing and they wanted a more Left-wing view of inflation,’ Mr King said.
He added: ‘Now this itself is odd because if economics is a science, then it shouldn’t really be affected, what you believe scientifically should not be affected by your political viewpoint.’
Milton Friedman was a US economist who is credited with promoting the free-market capitalism that influenced the governments of Margaret Thatcher and US President Ronald Reagan in the 1980s.
Mr King’s comments will fuel concerns about the Bank’s decision to raise interest rates to their highest level since 2008 as it struggles to bring inflation down to its target of 2 per cent.
The hikes have piled pressure on mortgage holders, many of whom have seen their monthly repayments rocket as they roll off fixed-rate deals, squeezing their household budgets amid surging prices.
The Bank’s governor Andrew Bailey has been criticised for not acting early enough to curb inflation and ignoring data that indicated prices would soar. But Mr King, 75, warned the Bank was at risk of hiking interest rates by too much and tipping the economy into recession.
‘If they carry on for the next six months, tightening monetary policy, they could generate a recession and a sharp fall in inflation,’ he told Bloomberg. Mr King added that central banks could adopt an ‘overkill’ strategy to bring inflation down, even if it risked derailing economic growth.
‘It would have been better to have tightened faster in 2022, even better not to have printed the money in 2020 and 21,’ he said.
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