Bank of England governor Andrew Bailey says he will not order printing money to fund a surge in Government spending amid coronavirus battle
- Bank of England gov Andrew Bailey: world faces a ‘time of great uncertainty’
- But he opposes calls for the BoE to print money simply to help the government
- Banks helping governments to spend raises concerns about future inflation
- Emergency cash measures will cost gov £60bn during a tax revenues plunge
Bank of England governor Andrew Bailey said he will oppose calls for the bank to simply start printing money to fund a surge in government spending during the Covid-19 pandemic.
Writing in the Financial Times on Sunday, Bailey said monetary financing during the coronavirus pandemic would result in an ‘unsustainable’ central bank balance sheet.
He added the calls were ‘incompatible’ with the pursuit of a 2% inflation target.
In March, when the Covid-19 impact set in on British business, the Bank of England increased its bond-buying programme by a record £200billion.
Bank of England governor Andrew Bailey (pictured) opposes calls for central banks to simply print money for government spending
The economic measures were similar to that of the US Federal Reserve and the European Central Bank, as central banks tried to prevent huge recession.
Then, finance minister Rishi Sunak announced the government would pay 80% of wages for those out of work due to the virus, in hope of keeping the economy buoyant until the crisis abated.
The historic investment was part of a series that could cost the UK government some £60billion when tax revenues are also plummeting.
Bailey said in his opinion piece the world faces a ‘time of great uncertainty’, but that he opposes calls for the bank to resort to printing money simply to support the government.
‘Using monetary financing would damage credibility on controlling inflation by eroding operational independence,’ said Bailey.
Adding: ‘It would also ultimately result in an unsustainable central bank balance sheet and is incompatible with the pursuit of an inflation target by an independent central bank.’
A late March photo showing a person wearing a protective face mask outside the Bank of England as Covid-19 rages in London and the UK
Bailey emphasized when the Bank of England announced the expansion of its bond-buying programme to £645billion that he would not abandon perennial concerns about monetary financing ‘because history tells us where that leads’.
Central banks helping states to spend more money raises concerns about future rises in inflation, even drawing parallels with the hyperinflation of 1930s Germany, according to Reuters.
Bailey writes in his article in the FT, the Bank of England would not allow its 2% inflation target to be pressured.
‘If the recent expansion of bond buying appears to threaten that goal, the MPC (Monetary Policy Committee) can react,’ he said, stressing the bank’s operational independence.
‘The BoE will not hesitate to take all necessary actions both to support British businesses and households through this period of uncertainty and to ensure inflation is consistent with the 2% target in the medium term.’