Britain faces a deep-rooted economic mess

The Bank of England didn’t bother to whitewash the economic woes Britain is now facing. Inflation topping 10 percent, a possible recession, and then years of near-zero growth were among the highlights of his chilling recent forecast. Even unemployment – previously one of the few reliable bright spots in the UK economic outlook – is expected to rise. The Monetary Policy Committee (MPC) decided to raise interest rates to 1 percent, which is still low by historical standards. In fact, some rate-setters wanted to be more aggressive, apparently fearing inflation would spiral out of control.

The MPC could hardly have done anything. Low interest rates and a massive quantitative easing program have sustained households and businesses through a series of difficult times. But these “emergency” policies have now been in place for over a decade, distorting economic decisions by penalizing austerity and providing artificial solace to the heavily indebted. The bank’s mandate is to keep inflation stable and low at 2 percent. It’s all very well to point to the global factors driving price increases, but the destruction of real savings and income threatens to impoverish millions.

The crux of an independent central bank was that by taking control of monetary policy away from politicians, the country would never again experience the runaway inflation of decades past. This theory of a wise and dispassionate “expert” technocracy has been widely dismissed. Some analysts fear the bank has fallen victim to a form of groupthink that has prevented it from making appropriate decisions for the economy. It is untenable that ministers have nothing to say about this and hide behind the argument that they do not control the MPC.

On the other hand, too many politicians had smugly assumed not to worry about the economy and that the post-lockdown recovery would be followed by a return to relatively healthy levels of growth. Conservatives in particular now appear to be showing complete ignorance of the role of incentives, including lower taxes, in promoting prosperity. Those who remember the 1970s will remember how high inflation coupled with sluggish growth was a recipe for class conflict, social unrest and political chaos. It took an economic revolution under Margaret Thatcher to put an end to this. Britain faces a deep-rooted economic mess

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