UK’s Bank of England defends inflation tackling accusations ahead of Truss review

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The Bank of England on Wednesday defended itself against accusations of being too slow to tackle sky-high inflation, as new Prime Minister Liz Truss plans a review of its independence.

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BoE Governor Andrew Bailey told a parliamentary committee that maintaining independence on how to meet a government-set inflation target of two percent was “very important.”

He also expressed confidence in bringing down the rate of UK inflation, even as the BoE forecasts it to keep soaring beyond the current 40-year high above ten percent.

Bailey told lawmakers that Britain was “heavily exposed” to the surging price of gas after key producer Russia’s attack on Ukraine.

Truss, who took office Tuesday following the resignation of scandal-hit Boris Johnson, has proposed examining the statute that gave the BoE operational independence over monetary policy in 1997.

Market watchers and some MPs within Truss’ own Conservative Party have hit out at the BoE, accusing it of being too slow to react to soaring prices.

Truss will Thursday outline plans to freeze a looming surge in domestic energy bills as Britain suffers a cost-of-living crisis.

BoE chief economist Huw Pill, sitting alongside Bailey on Wednesday, said the package that is expected to be worth tens of billions of pounds (dollars) could “lower headline inflation.”

Bailey told lawmakers that, since the BoE gained independence 25 years ago, “inflation has averaged pretty much on target” until the last few months.

He said the current 10.1-percent annual UK inflation rate “does not suggest that the regime has failed.

“What it suggests is that the regime has to do its work and respond to a much bigger shock -- and we are confident that it will do so and we will do so.”

Bailey did acknowledge, however, that it was “good practice” for central banks to face a review of their framework.

In a bid to cool soaring global inflation, the BoE and other major central banks have raised interest rates several times this year.

The most recent BoE increase was by 0.5 percentage points, its biggest hike since 1995 and which leaves British borrowing costs at 1.75 percent.

The BoE, which has forecast an inflation-induced UK recession starting this year, is widely expected to deliver another sizeable rate hike next week.

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