© Reuters. FILE PHOTO: Britain’s Chancellor of the Exchequer Rishi Sunak walks near the Treasury Building in London, England, May 3, 2022.REUTERS/Toby Melville
by Andy Bruce
LONDON (Reuters) – U.K. Finance Minister Rishi Sunak stepped up his rhetoric against Bank of England Governor Andrew Bailey, reflecting both of them as inflation hits the numbers are under political pressure.
The Bank of England insisted on gradual rate hikes on Thursday as other central banks took more urgent action, but said it was ready to take “forceful” action if necessary to remove the dangers posed by inflation.
The BoE also released an exchange of notes between the governor and the finance minister, asking Bailey to explain why the inflation rate – currently 9% according to the BoE and expected to exceed 11% in October – exceeds the central bank’s 2% Target. .
Usually the letters are mundane, but this week Sunak took a noticeably harsher tone when replying to Bailey.
“I know and expect you and the rest of the MPC to take the necessary steps to bring inflation back to target and ensure inflation expectations remain solid,” Sunak said in his letter to Bailey.
When he announced new cost-of-living support for families on May 26, Sunak said, “I know the governor and his team will act decisively” — not “know and expect.”
Sunak’s new language also contrasts with the passive tone of a similar exchange of letters in March, when Sunak said: “I welcome the intention of the committee … to take all necessary action.” »
Some members of Prime Minister Boris Johnson’s Conservative Party have publicly criticized the Bank of England for being too slow in the face of the growing cost of living crisis. Public satisfaction with the central bank is at an all-time high.
Andrew Goodwin, chief UK economist at consultancy Oxford Economics, said he doubted the Bank of England would face immediate serious and outright grievances from governments over its inflation performance, testing central banks around the world.
But it could help Sunak fend off criticism from critics who say that despite government pledges of 37 billion pounds ($45.4 billion) in support since the start of last year, it has not done enough for households, let alone the tax hikes for many. influence.
“It allows him to effectively say, ‘Okay, I’ll do more, but (the Bank of England) can’t control inflation, so this will tie my hands’ – which I don’t think is true,” Goodwin said.
“But if you clearly don’t want to expand fiscal policy further, it’s a good story. »
Elsewhere in his last letter, Sunak employed language that was more urgent than in previous letters. He told Bailey that he recognized the impact of high inflation on households, “that’s why, as you pointed out, inflation has to be brought back to target and held steady.”
“All in all, we have the tools and determination we need to bring inflation down, and I believe the central bank will play a role in making that happen,” Sunak said.
($1 = £0.8155)