In this column on the 8th, and again on the 15th of April last year I gave my analysis of the inflation that we were facing:
Inflation is always and everywhere a monetary phenomenon, there is no such thing as cost-push inflation. (desmondswaynemp.com)
My fears were not misplaced. I expressed my view that notwithstanding the severe impact of the war in Ukraine and the post Covid supply glitches that were affecting the world economy, my view was that inflation was caused by the growth in the money stock (principally in the form of credit and bank balances) relative to the availability of goods and services: Control of the stock of money is an essential element in restraining inflation.
In 1997 Gordon Brown handed responsibility for the control of inflation to the Bank of England, and with it, the power -independent of Government – to set in interest rates. I voted against that decision because I believed that politicians are democratically accountable in a way that the Governor of the Bank couldn’t be.
It is now clear that the Bank has made a complete Horlicks of it, but of course, most people still blame the Government anyway. It is galling to see the former Governor, Mark Carney, making highly political statements putting the problem down to Brexit. What twaddle: if that were the case why are interest rates are at similar levels in the United States, in Canada, in Australia and in New Zealand and they are at the highest level in Europe for 20 years?
And Since 2016, cumulative growth has been 4% in Italy and 5.5% in Germany, whereas in the UK it has been 6.8%. The UK had the highest growth of any G7 country in both 2021 and 2022.
Furthermore, In July last year, British exports to the European Union were the highest, not just since Brexit, but since records began.
Nothing to do with Brexit then, our problem is that the Bank, for too long, neglected the importance of restraining the money stock.
That’s not to say that politicians would have made a better job of it. Also, it can be said in mitigation, that the Bank placed a higher priority on avoiding a recession and in that it has thus far been successful, -even though the eurozone is currently in recession. (Though my present fear is that, with monetary growth now much tighter, it takes months for this to impact inflation, and the Bank, by pressing ahead with rate rises will cause the very recession that we have, so far, avoided).
Of course, one very significant contributor to our inflation is the level of Government borrowing.
We can certainly blame the Government for that. But, again, it was done to avoid the ghastly recessionary consequences of Covid lockdowns and then the need to pay half our energy bills following Russia’s invasion of Ukraine.
The principal restraint now on any intervention to assist people with their rising mortgage costs is that we’d make inflation worse by increasing borrowing even further (equally it would be unacceptable to help out mortgages without extending that help to rents).
This is going to be a difficult time for families like mine. But voters should beware of political parties with big spending plans: they will multiply our misery.