UK: The Monetary Policy Committee's (MPC) grim economic forecast for the country, released on Thursday, prompted allegations that Bank of England Governor Andrew Bailey was downplaying Britain's prospects and "adding to the feeling of panic," According to the Daily Mail.
After predicting that inflation would reach 13.3 percent in the last three months of 2022 and send Britain into a recession lasting more than a year, Bailey and his MPC colleagues came under fire from business executives and economists.
The most recent forecasts from the Bank of England indicate that real household income will shrink by about 5% over the next two years, with the reduction in the cost of living not expected to subside until 2024 at the earliest.
The bank's monetary policy committee on Thursday raised the cost of borrowing by 0.5 percentage points, from 1.25 percent to 1.75 percent, in an effort to control inflation. The cost of borrowing has increased the most in 27 years with the sixth consecutive increase from MPC since December.
Bailey's prediction that Britain would experience the biggest drop in living standards ever due to a stagflation was not true for everyone. At a time when the country reportedly needed "more optimism", critics accused BoE governors of acting too "downbeat".
Foreign Secretary and potential Tory leader Liz Truss insisted that despite the BoE's "extremely worrying" prediction, a negative outcome was "not inevitable." With his proposals for significant tax cuts, Truss suggested that the year-long recession could be avoided. "We can change the outcome, and we can increase the chances of the economy growing," she said.
Former chancellor Rishi Sunak, who is an opponent of Truss, said during a Friday Sky News debate that without tax cuts would cause "misery for millions".
Sir Ian Duncan Smith insisted: "The British people get the idea that a recession is inevitable – nothing is inevitable. The BoE was criticized for providing a forecast that "looks worse than most people think". And, if anything, it has added to the feeling of panic. According to Douglas McWilliams, deputy chairman of the Center for Economics and Business Research think tank, who echoed these sentiments.
Bailey's "very downbeat" forecast was compared to that of his peers at the US Federal Reserve by Gerard Lyon, an economist who had previously advised Boris Johnson to act as mayor of London. Lyons is currently the Chief Economist of NetWealth, an online wealth management service.
Andrew Bailey responded to the criticism, saying the bank's earlier action would have accelerated the downturn on BBC Radio 4's Today programme.
"We don't make policy with the benefit of foresight," he declared. "I made a commitment to look at the term — that's an eight-year term," the governor replied, when asked if he might resign in response to a shake-up from the new prime minister in the fall.
Since 2021, following the global trend, rising oil and gas prices have been a major factor in runaway inflation. The energy situation worsened after Russia launched its special military operation in Ukraine on February 24, and the US, the European Union and Western allies attacked Moscow with several sanctions packages.
According to Investec, the price cap on energy bills in the UK, which currently stands at £1,971 a year, is expected to rise sharply once again in January, as regulator Offgame revised its price cap.
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