Banks are not 'helpless' says ex-Bank of England governor as he slams 'serious mistakes'

17 May 2022, 21:13 | Updated: 17 May 2022, 22:46

Rest of the world has put a tax on the UK

By Sophie Barnett

Former Bank of England governor Lord Mervyn King has criticised central banks around the world for "making serious mistakes in not acting sooner" as he told LBC's Tonight with Andrew Marr that interest rates need to be hiked.

Listen to this article

Loading audio...

Lord King, who was governor during the 2008 financial crisis, told Andrew that "words aren't enough" at this stage - as thousands of families face a cost of living crisis in the UK.

He said central banks around the world, including the Bank of England, have "made serious mistakes in not acting sooner" as he spoke out against the policy of quantitative easing during the pandemic.

Lord King criticised his former bank's approach amid the cost-of-living crisis, calling for a hike in interest rates.

Watch Tonight with Andrew Marr exclusively on Global Player every Monday to Thursday from 6pm to 7pm.

And the peer questioned current governor Andrew Bailey's suggestion that 80% of inflation is due to outside forces such as global energy and food hikes, calling it a "debatable figure".

He also claimed "the rest of the world has imposed a tax on the UK" and admitted "most people are going to be worse off because of higher food and energy prices".

Read more: 'Don't ask for pay rises' Bank boss warns despite 'apocalyptic' food price rises

Bank of England must strive to put interest rates to 1%

He said the Bank of England must send a "strong, clear signal" that they're working to bring interest rates to 1%.

"I think the big challenge is they've got to demonstrate that they realise the need now is to give a very strong signal that they're focusing on bringing inflation down," he told Andrew.

Pressed on whether he means a substantial rise in interest rates is needed, he said: "The sooner it's done the lower it can be, but my worry would be if you defer this and creep very slowly, you end up in a situation where a year from now people are saying interest rates need to rise."

His comments come after the Governor of the Bank of England Andrew Bailey warned there is "very real income shock" coming from energy prices and "apocalyptic" food prices.

You can also listen to the podcast Tonight with Andrew Marr only on Global Player.

Mr Bailey said he felt "helpless" as he defended the Bank of England's monetary policy despite households being battered by soaring inflation.

He also doubled down on his claim that workers should not be demanding big pay rises.

Mr Bailey, who earns £570,000 a year, told MPs that big earners should "think and reflect" before asking for large salary increases to help curb rising inflation.

The Office for National statistics recorded inflation at 7 per cent in March and later this week is expected to unveil over 8 per cent inflation for last month.

The Bank of England has said inflation is likely to peak at 10.25 per cent during the final quarter of 2022.

Brexit won't have massive effect on UK economy

Lord King said it was "predictable" that inflation would be caused by the coronavirus response of quantitative easing, or introducing new money into the system by the central bank.

"All central banks have fallen prey to two serious errors. The first one is that when the pandemic hit, governments stepped in and put in a lot of money for furlough schemes or raising unemployment benefit. That was very sensible," Lord King said.

"The problem was that central banks also printed a great deal of money and that wasn't needed ... it put a lot of money into the system.

"It's an idea that we pursued at the end of the financial crisis, when we were trying to stop the amount of money in the economy from falling. What happened this time was that it grew very rapidly... And that was a mistake because the pandemic reduced the supply of the economy. And there was too much money chasing too few goods..."

Lord King, who stood down as governor in 2013, added: "And I think central banks around the world have made serious mistakes in not acting much sooner ... including ours."

More Latest News

See more More Latest News

Author Sophie Kinsella has revealed she is battling brain cancer

Bestselling Shopaholic author Sophie Kinsella reveals she has been diagnosed with aggressive form of brain cancer

Breaking
Karen Hadaway and Nicola Fellows

Police apologise for failings in investigation into 1986 Babes in the Wood murders of Karen Hadaway and Nicola Fellows

A protester uses a loudhailer during a rally in Athens

Unions in Greece call widespread strikes, seeking return of bargaining rights

Some have claimed cloud-seeding may be behind recent flooding in Dubai.

Did controversial ‘cloud seeding’ flights cause torrential downpours and huge flooding in Dubai?

Mick Donovan kidnapped Shannon Matthews over 15 years ago

Shannon Matthews' kidnapper Michael Donovan 'dies of cancer' 16 years after hiding schoolgirl in his bed for 3 weeks

Russian soldiers take part in a military exercise in the Donetsk region of Ukraine

14 killed as Russian missiles slam into Ukrainian city

David Cameron has said it is 'clear' Israel is planning to act

Israel is 'making decision to act', David Cameron says in Jerusalem as he urges Netanyahu not to escalate Iran conflict

Starmer and Sunak went head-to-head in the first post-Easter PMQs session

Starmer accuses Sunak of promising £46bn unfunded tax cut as he taunts PM about Liz Truss’ new book at PMQs

David wrote "50 never looked so good"

'50 and fit!': David Beckham shares never-before-seen photos of Victoria as she celebrates her 50th birthday

A homeless person sleeps near the Eiffel Tower

French police evict hundreds from abandoned Paris warehouse ahead of Olympics

Exclusive
Urgent warning to parents as doctor 'arriving from Bangladesh' advertising 'miracle autism cure'

Urgent warning to parents over doctor 'arriving from Bangladesh' with 'miracle autism cure' as cops launch fraud probe

People wade through floodwater in Peshawar

Death toll from four days of rain in Pakistan rises to 63

Marquess of Queensberry, David Douglas

12th Marquess of Queensberry, 94, uses Judo throw to fend off 6ft mugger who attacked him outside London home

Nick Read, chief executive of the Post Office, giving evidence to the Business and Trade Committee

Post Office boss cleared of misconduct after investigation into sexism and bullying claims

A Solomon Islander casts his vote

Solomon Islanders vote in election that will shape relations with China

Clarisa Figueroa (L), 46, was sentenced to 50 years

Killer dubbed 'Womb Raider' jailed for 50 years after murdering pregnant teenager and cutting out her baby