The Chancellor Jeremy Hunt has admitted for the first time that the massive money printing in the pandemic – more than in the whole previous decade – contributed to the current sky-high inflation.
- Speaking at the Centre for Policy Studies fringe event at Conservative Party Conference this afternoon, Hunt explained that it is the impact of inflation on debt interest payments that means there can be no tax cuts.
The Spectator‘s Kate Andrews has more.
As inflation tends to be a monetary phenomenon, it makes sense that quantitative easing had a direct impact on price spirals, and some are willing to point this out.
- Former Chief Economist to the Bank Andy Haldane was warning about the effects of money-printing on prices back in June 2021, when the rate of inflation was just starting to rise.
Former Bank Governor Mervyn King has been saying since last year that ‘too much money’ contributed to the inflation spiral. Economist Julian Jessop wrote on this topic for Coffee House last month, noting how the annual rate of inflation has roughly followed the growth rate of broad money. Yet it’s been in the interest of both ministers and central bankers to avoid addressing the role of money-printing directly: better for the crisis to be something they’ve been forced to respond to, rather than something they helped to cause.
But this afternoon Jeremy Hunt cautiously added his name to the list. Asked what he thought had contributed most to the inflation crisis – the war in Ukraine, money printing or a wage spiral – he said:
I hate ducking questions. I don’t think it’s quite as straightforward as ranking them one, two, three. I’d definitely put Russia’s war in Ukraine at the top of that list. I think that quantitative easing… I think it is reasonable to say we collectively underestimated the impact of that. Although in fairness to the Bank of England they did start to raise interest rates before everyone else.
Threadneedle Street did move first to raise rates, but once other central banks like the Federal Reserve followed suit, they did so faster and more aggressively than the Bank of England: a move which is now thought to have helped get America’s inflation rate down to almost half that of Britain’s. Indeed one of Hunt’s predecessors – and now boss – Rishi Sunak was well aware of the possibility that QE could trigger an inflation surge: long before Russia’s invasion,
- Chancellor Sunak was working to protect the U.K.’s finances from the prospect of even a small hike in the rate of inflation back in spring 2021.