The Monetary Policy Committee has been forced to take risks on inflation because of the Government’s fiscal policy, Lord Myners has claimed.
Speaking in the House of Lords on Monday, ex-City minister and Labour peer Lord Myners said the recent GDP figures which showed the economy contracted by 0.5 per cent was a sign the UK could be falling back into recession.
He suggested to Treasury commercial secretary Lord Sassoon that the effects of the Government’s austerity measures are forcing the MPC to ignore the risks of high inflation.
He said: “The Bank of England is having to take risks on inflation because the severe cuts in economic activity consequent upon the Government’s reckless fiscal policy.”
But Sassoon rejected Myners’ assessment saying the Government’s robust action on the economy had pulled the UK “back from the brink”.
He said: “It is precisely because the Government took resolute and early action to restore the fiscal position to one that pulls us back from the brink of the disaster which the previous government left us with, that the Bank of England can conduct monetary policy on a prudent basis.”
Sassoon also echoed comments made in a speech last week by Bank of England governor Mervyn King, who said rising commodity and energy prices, the weak pound and the rise in VAT caused inflation jump to 3.7 per cent in December.
King said inflation was likely to rise to 4 or 5 per cent in the coming months but without these external and temporary factors, UK domestically driven inflation would have been almost zero over the last four years.