Margaret Thatcher’s adviser on money supply said the Bank of England is making an error in identifying the war in Ukraine as one of the main drivers of inflation and that the UK is headed for a recession as a result.
(Bloomberg) — Margaret Thatcher’s adviser on money supply said the Bank of England is making an error in identifying the war in Ukraine as one of the main drivers of inflation and that the UK is headed for a recession as a result.
“They’ve got it wrong — hopelessly so,” Tim Congdon, who advised Thatcher when she was prime minister and the Treasury after that, said Monday in an interview on Bloomberg Radio. His view is that excessive money supply is the cause of medium- and long-term inflation, and that a drop in lending now will trigger a sharp downturn in the economy.
That view clashes with the reading of mainstream economists and BOE Governor Andrew Bailey, who say that soaring prices were triggered mainly by a jump in energy and food prices touched off by Russia’s invasion of Ukraine. Congdon said the BOE’s blind spot is a lack of staff who understand bank lending and money supply trends.
“The evidence overwhelming, and it’s puzzling in a way that the central bank has continued to resist this,” Congdon said. “I find I’ve been commenting on the Bank of England best part of 50 years now. I have to tell you, the current lot are some of the worst I’ve ever commented on.”
Monetarists like Congdon gained prominence after correctly anticipating sky-high inflation rates currently racking major economies. They prodded for interest-rate increases before others and now believe that a plunge in money supply and bank lending is likely to depress the economy in the year ahead.
Read more: Tumbling Money Supply Alarms Economists Who Foresaw Inflation
–With assistance from Tom Mackenzie.
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