Jeff Randal attracts the eyes and ears of many Very Important People, so his condemnation of the Bank of England deserves to be taken seriously.
His essential argument is the the 'Old Lady' has failed Britain by letting inflation rise to around 5%, whilst keeping interest rates low. His problem is that he treats all inflation as identical, and treats inflation as the be all and end all of economic objectives.
Recent inflation has been caused by weakening pound (thereby making imports more expensive) and increases such as VAT. These are temporary, whereas increasing interest rates will take 12-18 months to take full effect. They would only damage the economy which has been stagnant at best over the last six months, and teetering on the brink of recession. We are likely to be in one once the cuts take full effect (unlike the US, which has pursued a broadly, though modestly, Keynesian approach), and higher interest rates will only make things worse.
What I find odd is the belief that interest rates are somehow 'special'. All you're really doing when you're raising them is making a certain part of the economy more expensive, thereby making some people poorer, thereby reducing demand, thereby reducing prices. In other words, you're creating inflation to cut inflation.
The current inflation we have is not driven by excess demand but by rising costs, and there's no reason to assume that normal inflation will not be just as counter-inflationary in the medium term as interest-rate inflation.
Nor is it clear that 5% inflation is bad. There's actually little empirical evidence that it is, nor is single-digit inflation self-perpetuating; more often its self-negating, for the reasons I outlined above. Britain's rate of economic growth was at its highest between 1945-1970, (see here, page 23, where we went from -5% to +7%, and then from +7% to +3%) when our post-war national debt was vastly greater than ours today, and inflation was often between 5-9%.
Cutting demand during a recession makes no sense, which is why I'm hoping that Very Important People will skip Jeff today.
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