Bank of England, losing credibility

23
J. Soedradjad Djiwandono
J. Soedradjad Djiwandono, Emeritus Professor of Economics, Faculty of Economics and Business, Universitas Indonesia, and Adjunct Professor of International Economics, S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Jakarta, IO – It was recently reported that the Bank of England (BoE) has been losing credibility with the public, as it is considered ineffective in its stated policy to repress inflation. Despite a BoE decision to raise interest rates 75 basis points several times, that now reached 3 per cent, the highest in so many years, the UK inflation rate is still hovering at a bit over 11 per cent, almost twice as high as the rate in the US. I think the unemployment rate also higher than that of the US. This must cause headaches for Governor Andrew Bailey, who has held this position since March 2020. Working hand in hand with Chancellor of the Exchequer Jeremy Hunt, they attempt to steer the UK economy out of inflation while avoiding a recession and maintaining stability. Of course, this is a heavy burden for PM Sunik Rishi as well. It is certainly becoming clearer that these implications revealing what it is like being outside the European Union – ones that the Brexiters might not have had in mind when they voted to leave the EU a year ago. Indeed, there is no such thing as a free lunch, a dictum that no economy can avoid. 

In this case, what has been facing UK economy is similar to what most EU economies are facing. Despite a similar interest rate policy enacted by ECB President Christian Lagarde, inflation is still raging, and so is the unemployment rate. 

Germany is not faring much better, with an inflation rate at 10 per cent instead of 11 per cent. All these countries are worried by the specter of economic recession, even though I think it is less likely to happen. 

These developments are different from what is happening on the other side of the Atlantic. The US economy has been performing better than its counterparts in Europe, both regarding inflation and the unemployment rate. For that matter, President Biden has been faring better than what history and pundits have been predicting, as for the incumbent the midterm election results are usually bad. As I wrote in my previous column, yes, the Democrats lost their majority in the House, but even here the loss does not give the Republicans a clear majority, as they are fewer than the magic number of 218. And current Minority Leader Kevin McCarty must fight hard to become the Speaker of the House. 

Back to President Biden again: he beat the predictions of history and political pundits, and recently his popularity rating has begun to rise. New developments may pose hurdles later, as Arizona Senator Kirsten Sinema decided to leave the Democratic Party and declare herself an Independent, joining Senator Bernie Sanders from Vermont and Angus King from Maine. Senator Sinema and Senator Joe Manchin of West Virginia sometimes act like mavericks, so for some issues they may cause some problems for the Democrats. In any case, the increase of popularity, and the relatively admirable economic performance, may indeed strengthen President Biden in his resolve to run again in 2024. Just wait and see whether he finally decides and what happens to Florida Governor DeSantis, whether he decides to run and compete against former President Donald Trump – a figure who remains struggling, facing legal problems.