Bank of England sweeps back as Tory candidate Tugendhat blames inflation crisis on QE ‘sugar high’


The Governor of the Bank of England reacted today to Tory leadership candidate Tom Tugendhat over his claim that Threadneedle Street’s monetary policy is responsible for the inflation crisis.

Appearing before MPs, Andrew Bailey tried to avoid the ongoing battle for Conservative Party leadership and the flurry of tax cuts promised by rival competitors.

But – in a swipe at Mr Tugendhat – he emphasized that he does not “endorse the view” that quantitative easing (QE) during the Covid crisis is at the root of the current high inflation.

Bailey also warned those aspiring to become prime minister that he would fight to protect the Bank’s independence.

Lately there has been rumblings over the Bank’s future – with questions about its independent status – as inflation continues to rise amid the cost of living crisis.

Threadneedle Street has an official target of keeping inflation at two percent, but the current CPI rate stands at 9.1 percent and is expected to rise to 11 percent later this year.

The Governor – asked if he feared a culture of Bank-bashing would become entangled in the debate – insisted that “central bank independence” is a “cornerstone of economic policy.”

Tom Tugendhat blames rising inflation on a ‘sugar high of growth’ provided by the Bank of England pumping new money into the economy

Andrew Bailey, the bank's governor, insisted he did not

Andrew Bailey, the bank’s governor, insisted he did not “endorse the view” that quantitative easing (QE) is driving the current high inflation

The bank's future has been rumored lately - with questions about its independent status - as inflation continues to rise in the cost of living during the crisis

The bank’s future has been rumored lately – with questions about its independent status – as inflation continues to rise in the cost of living during the crisis

Mr Tugendhat, a senior Tory backbencher, outlined his aim this morning to ‘slow down’ the economy in his bid to become prime minister.

In an interview with BBC Radio 4’s Today programme, he blamed rising inflation on a ‘sugar spike of growth’ provided by the Bank pumping new money into the economy.

“What is causing inflation is the lack of proper money,” Tugendhat said.

“What we have here at the moment is that we don’t have a good control of our own money supply.

“I’m afraid that the quantitative easing that has pumped up the economy and inflated a sugar spike of growth in various ways through the quantitative easing, what we’ve actually done is we’ve effectively lowered the cost of money.

And that’s what caused inflation. If you look around the world, countries like Switzerland haven’t had this rise in inflation – they haven’t followed the same policies.

‘Other countries do. Inflation is a huge problem worldwide.’

But when speaking to the House of Commons Treasury Committee this afternoon, Mr Bailey dismissed Mr Tugendha’s criticism of the Bank’s monetary policy.

“In general, because it’s clearly a point being made, I’m afraid I don’t subscribe to the view that QE is responsible,” he told MPs.

“If that were the case, I think we would have much stronger domestic demand in this country than we have now.

“But I’m not going to join that debate.”

Tom Tugendhat is one of many Tory MPs vying to replace Boris Johnson as Prime Minister

Tom Tugendhat is one of many Tory MPs vying to replace Boris Johnson as Prime Minister

Labor’s Rushanara Ali also questioned Bailey about the “corrosive effect” of people questioning the Bank’s independence during the current economic downturn.

“It’s a very serious matter,” he replied.

“All I’m saying is that I’m not going to get involved in the debate over who should be the leader of the Conservative Party – that’s not for me.

“It is of course a very serious issue and I hope people understand the importance of central bank independence.

“The fact that, as I’ve said a number of times, now is the time – given the stress we’re experiencing – for independence and the bank to do their job.

“And we’re doing our job.”

He added: “I’m just going to say that people need to understand the importance of central bank independence as a cornerstone of economic policy.

“It’s not just in this country — it’s natural in many countries around the world now.”

The governor was also pressured by Ms Ali to question whether he was concerned that the Bank could become a ‘political football’ in the Tory leadership match.

Bailey said: ‘I am not going to run for the Conservative Party leader.

‘I would put it this way, I think Parliament is an important stronghold when it comes to institutions in the country, ie public institutions.’

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