Sunak, not Bailey, is to blame for inflation

Inflation has hit a 40-year high. The cost of household utilities rose by an average of £700 last month. We are now facing inflation of 9 per cent and the figure is still careering upwards. In response, politicians and ministers have attacked the Bank of England. Some commentators have even started to call for Governor Andrew Bailey to resign. The Governor himself and Chancellor Rishi Sunak say there is nothing that can be done about prices rising. They’re both wrong.

First, let’s understand why it is unfair to attack the Bank of England. Under our system, the Bank is not independent, as some like to claim. Rather, it has what is called ‘operational independence’. That means that the rate of inflation is the responsibility of the Chancellor of the Exchequer but how that rate is achieved operationally – through a blend of interest rate rises, money-printing or intervention in foreign exchange markets – is a matter for the Bank of England.