Ex-governor critical of the Bank of England

BRITAIN’S former most senior banker has accused the Bank of England of helping to push up inflation by printing money during the pandemic.

Mervyn King, who was governor of the Bank during the 2008 financial crisis, said that central banks around the world were pursuing “mistaken ideas”.

“There are mistaken ideas floating around in the central banking world, compounded now by bad luck after the Russian invasion of Ukraine,” he said.

He said that banks printed more money through quantitative easing during the pandemic, at the same time as the economy was shutting down. This meant that there was more money and less goods to buy with it, causing prices to go up.

“It’s interesting that it was common to all central banks. They basically felt: ‘We must demonstrate that we’re here, we must do something’,” he told Sky News.

“But governments were doing a great deal, though in our case the furlough scheme, which was very sensible... it didn’t need central banks to print lots of extra money on top of all that. That’s generated a rise in inflation.”

He said that central banks do not have a clear plan of how to get inflation back down to 2%, the target that many central banks around the world pursue.

“The argument of central banks essentially is: ‘Well, we’re saying it will come down to 2%, so everyone will believe us, so it will come down to 2%’,” he said. “That’s a very odd way of thinking about it.

“I call it the King Canute theory of inflation. You sit there and you command the forces of the economy to bring inflation down to 2%, irrespective of whether you’re prepared to raise interest rates enough to achieve that.

“I think the test will be, once we see towards the end of next year how far inflation has come down, central banks may need to do quite a lot more in order to ensure that inflation comes down.”

Inflation hit 9% in the year to the end of April, the highest in 40 years according to estimates from the

Office for National Statistics. It was especially high in April due to the increase in the price cap on energy bills, which shot up 54% for the average household.

Meanwhile, consumers have seen the price of hundreds of popular grocery items rise by more than 20% over the last two years alongside a drop in supermarket discounts and budget ranges, a study has found.

found that the price of 265 groceries soared by more than a fifth at the same time as the availability of supermarket discounts and budget ranges – upon which consumers are increasingly relying – fell.

The watchdog analysed the prices of more than 21,000 groceries over two years, comparing their average prices at eight major supermarkets between the start of December 2021 and the end of February 2022 with the same period two years previously.

Items included Kellogg’s Crunchy Nut Corn Flakes Cereal 500g, which increased by 21.4% at Tesco, Asda’s 250g Own Label Closed Cup Mushrooms, up 21.4%, and Cathedral City Extra Mature Cheddar 350g, which rose by 21.1% at Ocado.