A deep-rooted economic mess
The Bank of England did not bother to sugarcoat the economic misery now facing Britain. Inflation above 10 per cent, a possible recession, and then years of near-zero growth were among the highlights of its chilling latest forecast. Even unemployment – previously one of the few reliable bright spots in the UK economic outlook – is set to rise. The Monetary Policy Committee (MPC) chose to increase interest rates to 1 per cent, still low by historical comparison. Indeed, some rate-setters wanted to be more aggressive, evidently fearful that inflation could run completely out of control.
The MPC could hardly have done nothing. Low interest rates and a massive programme of quantitative easing have supported households and businesses through a series of tough periods. But these “emergency” policies have now been in place for over a decade, distorting economic choices by punishing saving and giving artificial comfort to the highly indebted. The Bank’s mandate is to keep inflation stable and low at 2 per cent. It is all very well pointing out the global factors that are fuelling price rises, but the destruction of real savings and incomes threatens to impoverish millions.
The whole point of having an independent central bank was that, by taking control over monetary policy out of the hands of politicians, the country would never again experience the runaway inflation of previous decades. That theory of a wise and dispassionate “expert” technocracy has been comprehensively trashed. Some analysts fear that the Bank has fallen prey to a form of groupthink that has hindered its ability to make appropriate decisions for the economy. It is unsustainable for ministers to have nothing to say about any of this, hiding behind the argument that they do not control the MPC.
Then again, too many politicians had complacently assumed that they did not need to worry about the economy, and that the post-lockdown rebound would be followed by a return to relatively healthy levels of growth. The Conservatives, in particular, now appear to show total ignorance about the role of incentives, including lower taxes, in encouraging prosperity. Those who remember the 1970s will recall how high inflation combined with stagnant growth was a recipe for class conflict, social strife and political chaos. It took an economic revolution under Margaret Thatcher to put an end to it.