ALEX BRUMMER: Time to break Britain’s addiction to quantitative easing

Andrew Bailey’s job as governor of the Bank of England was always going to become most difficult when the task of preserving financial stability clashed with the core responsibility of taming inflation.

Bailey did a terrific job of preventing financial markets falling off a cliff edge at the outset of Covid and in supporting the Government in preventing the economic scarring, which was widely feared.

The Bank’s direct contribution to ensuring a robust recovery has been to keep the printing presses rolling.

Rescue: Bank of England governor Andrew Bailey did a terrific job of preventing financial markets falling off a cliff edge at the outset of Covid

Quantitative easing, which began as an emergency fix in the financial crisis of more than a decade ago, has become a permanent feature of policy. 

The £895billion bond-buying programme (including £20billion of corporate debt) has been helpful to the Government as public sector borrowing soared.

The latest consumer price inflation data, together with a surge in average weekly earnings, is raising questions as to whether the last £150billion of QE, authorised in January, should be completed.

At the last Monetary Policy Committee meeting in May, former chief economist Andy Haldane proposed tapering by £50billion. 

He has now gone but deputy governor Dave Ramsden and outside MPC member Michael Saunders are starting to get the heebie-jeebies about rising prices and might want to engage the brakes.

It is disturbing that the Bank has been ineffective in explaining how QE helps us all. It is understandable that at times of distress, as when Lehman collapsed in 2008 and in March 2020 when Covid caused panic, that flooding the system with cash was seen as a public good.

However, a report by the House of Lords economics committee argues that the latest round of QE could be inflationary.

Peers say that if the bank doesn’t act to curb inflation now ‘it will be much more difficult to rein in later’.

The committee carries weight in that its members include former governor Lord King under whose stewardship the first QE was done. 

Committee chairman Lord Forsyth argues that the Bank has become ‘addicted’ to QE, which now represents 40pc of national output. He asserts that there has been a big deficit in both scrutiny and accountability.

Much of the current bout of inflation can be attributed to known factors such as surging oil and fuel prices, supply bottlenecks as the world emerges from Covid and souped-up house and timber prices.

Skill shortages in the labour market contributed to the 7.3 per cent rise in average weekly earnings in the three months to May. 

Recruitment specialist Hays notes in an update that in an employment market short of skilled individuals, job seekers are in a strong position. 

The Bank needs to signal cautionary steps before inflationary expectations for consumers and workforces become entrenched.

Lottery winner

As much as one wants Britain to be a leader in financial technology, the idea that Revolut, which still lacks a UK banking licence, is worth £24billion takes a bit of getting used to.

It makes disrupter payments firm Wise, with a quoted value of £9.6billion, look a steal.

Revolut’s claim to fame is that it has accumulated 16m customers in super-fast time and has been pushing into new global markets, including the US and India. 

The presence of City veteran Martin Gilbert as chairman provides assurance of safety, and the key to growth is the Revolut debit card, which offers low-cost access to foreign currency shopping in 110 jurisdictions.

But as we learned over the last decade, there is no such thing as free banking. That is why the UK banks became caught up with the payment protection insurance (PPI) scandal, which ended up with a bill of £53billion. 

It is not that reassuring to learn that some of Revolut’s recent success comes from crypto-currency services just at the time that regulators are clamping down.

Doubtless the established banks with their clunky tech are there for the taking. The best hope for Revolut is that an older player thinks it is worth snapping up before it is stymied by the heavy hand of regulation.

Leaves on line

Now that Covid is hopefully fading as a narrative, it is intriguing that Asos, one of the upstart online beneficiaries, has discovered the traditional lament of fashion retail.

When things go awry, blame the wrong kind of weather. In Asos’s case, too much rain in Britain. Has chief executive Nick Beighton been consulting Network Rail?