Sir Jacob Rees-Mogg has blasted the “failing” Bank of England and called on the Government to re-open the question of its independence.
The demand comes after former Bank of England chief economist Andy Haldane warned that the central bank could “crush” the economy as it emerges from its inflation crisis.
Mr Haldane, now the Chief Executive of the RSA, told Bloomberg: “It’s one thing to miss inflation on the way up.
“It’s another to then have crushed the economy on the way down.”
He warned that such an eventuality would be a “double blow” to the credibility of the Bank of England, and one it must avoid.
Referring the Government to Mr Haldane’s comments, Sir Jacob Rees-Mogg has now called for a debate about the Bank’s independence.
He said in the House of Commons: “Does my Rt Hon. Friend agree that the Bank of England is no longer showing itself to be competent, and its independence must be questioned.”
Treasury minister Bim Afolami defended the Bank, however, arguing it is “very important” to leave them to do their work and respect its independent mandate.
However he said the Treasury has a key role in bringing inflation down and supporting the Bank of England in achieving the 2% target.
Mr Afolmi argued that Labour’s plans “will lead to an increase in borrowing or an increase in taxes, which will significantly damage that aim”.
Speaking before the Treasury Select Committee this morning, Governor Andrew Bailey told MPs that the UK’s recession is the weakest “by a long way” compared with other downturns going back to the 1970s.
Mr Bailey signalled that inflation does not need to reach 2% before the Bank starts cutting interest rates.
He told the Committee: “The two successive quarters… last year, I think, cumulatively add up to minus 0.5% on GDP.
“If you look at recessions going back to the 1970s, this is the weakest by a long way because the range, I think… for those two quarters for all the previous recessions was something like 2.5% to 22% in terms of negative growth, so minus 0.5% is a very weak recession.”
The Banking chief said that the crucial 2% inflation target is likely to be met this spring.
He said: “We don’t need inflation to come back to target before we cut interest rates, I must be very clear on that, that’s not necessary.
“We’ll be looking for sustained progress on those things to reach that judgment about how long this period of restrictive policy needs to be.”
Monetary Policy Committee member Swati Dhingra warned that if interest rates are kept high “for longer” it could hold back the economy.
She argued that the downside risks of keeping interest rates high for too long are “substantial” as it’s choking off consumption spending, which is much higher in other economies.
