The PM should not be treading on Governor Andrew Bailey’s toes
Returning to the 2 per cent inflation target is going to be hard enough for the Governor of the Bank of England – a quick read of the views of our panel of experts will confirm it – but Andrew Bailey’s job has been made even harder by Rishi Sunak.
The Prime Minister promised to halve inflation by the end of this year. This intervention will not only be annoying for Bailey – it is his job to lower inflation, not Sunak’s – but it risks compounding an increasingly entrenched problem.
That is because Bailey has two main ways to bring it under control: to increase interest rates quickly, and to make us all believe that inflation will soon come down.
The latter is important, as when employers set our wages for the year, and businesses their prices, you don’t want them factoring in high inflation.
If they do it results in a wage-price spiral, where wages keep going up to meet inflation and costs go up and up.
Sunak’s goal of halving inflation by the end of the year has meant businesses are focused on a rate of 5 per cent, rather than on the Bank’s official 2 per cent target.
Now, wages are going up more than ever, and if the data on core inflation doesn’t improve, there will be more increases to the base rate on the horizon, starting when the Bank meets next month.
It is time for the PM to fully back the Bank, which means avoiding making politics out of monetary policy.
Twitter: @jessiehewitson
