Web zero in charge for BoE’s inflation errors, suggests former boss

Lord Mervyn King, who was BoE Governor from 2003 to 2013, steered that including local weather change to the Bank’s ever-growing record of duties was the straw that broke the camel’s again.

His interview with a nationwide newspaper mentioned that including extra duties to the BoE’s remit distracted policymakers from their foremost position – protecting inflation in test. Lord King mentioned that the “great danger” with that is that the is that “the urgent drives out the important”.

Lord King’s comments come just days after the BoE’s former chief economist, Andy Haldane, suggested that mistakes made by the BoE had fuelled inflation.

Now, Lord King has suggested that BoE is being asked to do much. And he said it made “absolutely no sense” to make the BoE responsible for achieving net zero because the bank “can do nothing about local weather change”.

Lord King told The Telegraph “The Bank of England can do nothing about climate change. It’s not even obvious that the biggest and most immediate risks to the stability of the banking system are coming from climate change, as opposed to pandemics or cyber security. So to have a special focus on [climate] doesn’t in my view make any sense.”

He said he thought climate change had turned into a “quasi-religious debate”, with politicians and policymakers chasing arbitrary goals. And he said that the UK’s efforts have “a negligible affect” on global emissions.

“I think it’s a mistake to put all the eggs in the basket of net zero for the UK. And it’s particularly a mistake to ask each individual business or company or organisation to have a net zero,” continued Lord King.

“As Tony Blair said recently, whatever Britain does in terms of emissions is going to have a negligible impact on world emissions. Technology is what we can offer the world. It doesn’t make sense for the government to have arbitrary dates at which you ban gas boilers or petrol cars. It makes sense to think about total emissions.

“So I think that a government that was really serious about trying to reach net zero would introduce a proper carbon tax, initially at a low rate and gradually raise it, because that’s the one thing that will really [make a difference]. And if they’re not willing to do that, then they’re not willing to say to the electorate that we care enough about net zero.”

On Wednesday (September 7) the BoE’s current Governor, Andrew Bailey, said the UK is “much nearer” to the top of the cycle of interest rates – but he warned that inflation could rise again due to the impact of fuel prices.

He told a group of MPs during a Treasury Committee session that there is no longer a clear upward path for interest rates, which currently stand at 5.25%. And Bailey stood by earlier forecasts that inflation will fall sharply towards the end of the year amid scrutiny over the economy.

But he admitted to being surprised by the continued pressure from wage bargaining by private-sector workers on UK inflation in recent months. Consumer Prices Index (CPI) inflation fell to 6.8% in July, down from 7.9% in June – and a high of 11.1% last October. However, this is still 4.8% above the 2% target.

Speaking the day before Bailey updated the Treasury Committee, former BoE chief economist Andy Haldane suggested the Bank had “regrettably” made mistakes that fuelled inflation in the UK.

When asked about inflation, Andy Haldane told Sky News: “It [the Bank of England] stored on printing cash for a bit longer than it wanted to. I feel with the advantage of hindsight… we most likely did just a little bit an excessive amount of for just a little too lengthy.

“I make no apologies about the greater sway of that easing – that was needed, I think, at the time of COVID to protect jobs and to protect households and to protect businesses.

“But did we stick with that just a little longer than we would have liked to? And did they step on the brakes just a little too late – and due to this fact just a little tougher now than they wanted to? I feel that’s most likely the place we discover ourselves, regrettably.”