The former foreign secretary, William Hague, has been accused of attempting to undermine Bank of England governor Mark Carney after he warned that central bankers could lose their independence if they ignore public anger over low interest rates.
One MP described Lord Hague’s threat as part of a “blame game” by Conservative ministers and their supporters to distance the government from rising shop prices following the fall in the pound.
Labour MP John Mann, a member of the Treasury select committee, said Theresa May was behind a campaign to shift the focus of public anger at the likely fall in living standards to Threadneedle Street.
Mann was joined by the former Bank of England official David Blanchflower, who said Hague’s comments were a “distraction from the impact of the government’s austerity policies, which had weakened the economy and prevented the Bank from raising rates”.
Hague said savers were finding it “impossible to earn a worthwhile return” while central banks maintained ultra-low interest rates. Pension funds were being crushed by the collapse in interest they earn on investments, he added, while the Bank’s massive stimulus programme increased inequality by pushing up property and stock market prices, which benefited the better off.
Writing in the Daily Telegraph, Hague said: “Eight years after the global financial crisis [central banks] are still pursuing emergency policies that are becoming steadily more unpopular and counterproductive. Unless they change course soon, they will find their independence increasingly under attack.”
The scathing assault on the Bank’s low interest rate policy since the 2008 crash echoes the prime minister’s criticisms at the Tory party conference, when she said the Bank’s actions were hurting “ordinary” people. May said it was the rich who benefited from the Bank printing money and cutting interest rates, while “ordinary, working-class people” were asked to make sacrifices in terms of stagnating pay, job insecurity and unaffordable housing.
Donald Trump, the US presidential candidate, has repeatedly attacked the US central bank chief, Janet Yellen, for punishing savers by keeping interest rates low.
The Bank of England cut interest rates to 0.5% in the aftermath of the Lehman Brothers collapse in 2008 and reduced the base rate further in August to 0.25% to head off the threat of a recession following the Brexit vote.
Last week, Carney said Threadneedle Street would not take instructions on its policies from politicians.
Carney, the Canadian economist who is considering whether to extend his term of office beyond 2018, said it became difficult for the Bank when politicians commented on its policies rather than its objectives. He said politicians had done a “good job” of setting up the system in which the Bank operates, but added: “We are not going to take instruction on our policies from the political side.”
On a recent visit to Washington, he said the government needed to boost its spending before the economy could be weaned off the Bank’s life support.
“I have long said that monetary policy has been overburdened. There needs to be a better balance of monetary policy, fiscal policy and structural policy,” he said.
On Monday deputy Bank governor Ben Broadbent was forced to defend the bank’s policies against MPs who said employers were scaling back investment and limiting wage rises in response to the growing burden of larger occupational pension scheme deficits.
“Looking at the evidence, we don’t see great evidence that these deficits are really affecting their behaviour, whether it is overinvestment or overemployment,” he said.
Hague listed 10 reasons the Bank’s low interest rates were harmful and needed to be reversed quickly. He said the US Federal Reserve was best placed to boost interest rates back towards pre-crash levels of 4% after years of consistent growth.
“The only way out is for the US Fed to summon the courage to lead the way to higher interest rates, and others to follow slowly but surely,” he said. “If they fail to do so, the era of their much-vaunted independence will come, possibly quite dramatically, to its end.”
Blanchflower, an economics professor at the Ivy League US university Dartmouth College, said raising interest rates would weaken the economy at a crucial time, delaying a recovery that was already the slowest in 300 years.
Conservative MP Jacob Rees-Mogg said Hague’s arguments against low interest rates deserved to be aired, “when it can be argued they are now causing more problems than they solve”.
“I don’t think there is a golden rule that says independent central banks are a good thing. It is beneficial it is being debated, and probably for the Bank of England, allowing it to question its policies knowing there is support for a change if it decides that is necessary,” he said.
guardian.co.uk © Guardian News and Media Limited 2010
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