Yahoo Finance Andrew Bailey faces grilling as Tories turn on Bank of England
Andrew Bailey is to face questions about his leadership in the House of Commons on Monday as Tory backbenchers turn on the Bank of England Governor over the cost of living crisis.
Conservative MPs on the Treasury Select Committee are expected to ask why the Bank has allowed inflation to surge to 30-year highs of 7pc after repeatedly insisting that price rises were "transitory".
Inflation is forecast to rise into double figures later this year, more than five times the Bank’s 2pc target.
Kevin Hollingrake, a Conservative MP on the Treasury committee, said: “If there are problems in an organisation, you have to look to the leadership.
"Those are the questions people are going to be asking: has the Governor of the Bank of England got it right?”
The criticism comes as the Conservative Party lags behind Labour in the polls. The party has lost its lead on the economy following a series of tax raids as household budgets are squeezed by surging costs.
It has long been “obvious inflation was not going to stop at 5pc or 6pc, it was going to keep on going,” Mr Hollingrake said, given pressures in energy markets, materials prices and wages.
He added: “You could easily say they have been slow to act.”
Harriett Baldwin, another member of the Committee, said the Bank missed early signs of the coming rise in prices and was “wrong in expecting the spike in inflation to be temporary and to dissipate quickly.”
Warning that the lessons of high inflation in the 1980s and 1990s appear to have been forgotten, she said: “Central banks collectively had got complacent about inflationary pressures."
Bank officials have argued that much of the current spike in prices comes from global energy markets and the war in Ukraine, as well as congested international supply chains, which higher interest rates can do little to combat.
However they have raised interest rates from 0.1pc in December to 1pc now and are expected to go further as they seek to stop inflation becoming embedded in the economy.
Mel Stride, Tory chairman of the Treasury Committee, said: “It would never have been easy to predict the extent and nature of these factors ahead of time and the UK is far from being alone in facing high inflation. Monetary policy takes time to feed through and lower demand, and it cannot do anything about high energy costs."
But he added the Bank still has questions to answer.
He said: “I have been arguing for some time that there is an emerging threat of a wage-price spiral, which may indeed now be taking off.
"Monetary policy plays a central role in anchoring future inflationary expectations and can have a decisive impact on wage bargaining.
“My personal view is that this is the part of the picture where the Monetary Policy Committee has the most questions to answer.
"Did they get their judgements around wages and the labour market right? Or were they too slow to understand what was happening?”
Steve Baker, a former minister and influential backbench critic of the Government, said the current crisis brings into question the world economy’s reliance on cheap borrowing to solve any and every problem.
He said: “I am absolutely certain we need a paradigm shift in economic thinking, because right now central banks everywhere are ruining societies’ prospects."
Mr Baker criticised the reliance on quantitative easing during the pandemic, in which the Bank of England bought Government bonds to stabilise markets and keep borrowing costs low.
He said: “The Government didn’t borrow the money for the Covid response from savers - it was borrowed indirectly from the Bank of England creating it.
“Inescapably now, we suffer the consequences.”
It comes after Liam Fox, the former Defence Secretary, called for an investigation into the Bank’s performance in the Commons this week.
He said: “I believe it is the duty of central banks to safeguard the value of our money and our savings.
“The Bank of England persisted beyond any rational interpretation of the data to tell us that inflation was transient. That it would peak at 5pc. They have consistently underestimated the level of the threat.”
The Bank of England declined to comment.
