The head of the Bank of England has said there are “very big lessons” to learn about how the central bank has dealt with the economic shocks that have resulted in persistent double digit inflation and a cost of living crisis.
Governor Andrew Bailey’s comments represent a tone change from the Bank, away from defending actions, such as the pace and timing of interest rate rises, to acknowledging monetary policy has not been perfect.
He faced rigorous questioning on the rate of inflation – which has remained above 10%, more than five times the Bank’s 2% target and above their forecasts – from MP members of the Treasury Committee.
The Bank has consistently raised interest rates since December 2021 in an effort to suppress economic growth and dampen inflation as a result.
MPs were critical of the Bank’s efforts to bring down inflation, particularly food inflation, which latest figures show stood at 15.7% and which the Bank has described as a “shock”.
Some of the criticism was accepted by Mr Bailey.
“I think there is a genuine debate with food for instance, not so much about the shock itself … but actually about the longevity of the pass through of food prices and what we learned about that, so I think we have a lot to learn about operating monetary policy in a world of big shocks.”
Recent events such as the COVID-19 pandemic, Russia’s invasion of Ukraine, and the associated significant rise in energy costs, have impacted the economy and led to soaring inflation which has impacted the monetary policy response of the Bank.
Those shocks have been “unprecedented, not just in the last 30 years”, Mr Bailey said.
Food inflation has been so high, he said, due to weather events which led to salad vegetable shortages; avian flu; the high cost of sugar and producers dealing with expensive energy bills.
When asked if the months of strikes, taken in a range of industries across the public and private sectors, had added to inflation, Mr Bailey said it hadn’t.
“I don’t think we’ve any sense of that at the moment no, though we do watch it carefully”, he said.