Central banks drove inflation by printing money, says former Bank boss King

Mervyn King was governor of the Bank during the 2008 financial crisis.

Lord Mervyn King led the Bank of England between 2003 and 2013. (Philip Toscano/PA)
Lord Mervyn King led the Bank of England between 2003 and 2013. (Philip Toscano/PA)

Britain’s former most senior banker has accused the Bank of England of helping to push up inflation by printing money during the pandemic.

Mervyn King, who was governor of the Bank during the 2008 financial crisis, said that central banks around the world were pursuing “mistaken ideas”.

“There are mistaken ideas floating around in the central banking world, compounded now by bad luck after the Russian invasion of Ukraine,” he said.

He said that banks printed more money through quantitative easing during the pandemic, at the same time as the economy was shutting down.

This meant that there was more money and less goods to buy with it, causing prices to go up.

“It’s interesting that it was common to all central banks.

“They basically felt: ‘We must demonstrate that we’re here, we must do something’,” he told Sky News.

“But governments were doing a great deal, though in our case the furlough scheme, which was very sensible… it didn’t need central banks to print lots of extra money on top of all that.

“That’s generated a rise in inflation.”

He said that central banks do not have a clear plan of how to get inflation back down to 2%, the target that many central banks around the world pursue.

“The argument of central banks essentially is: ‘Well, we’re saying it will come down to 2%, so everyone will believe us, so it will come down to 2%”, he said.

“That’s a very odd way of thinking about it.

“I call it the King Canute theory of inflation: You sit there and you command the forces of the economy to bring inflation down to 2%, irrespective of whether you’re prepared to raise interest rates enough to achieve that.

“I think the test will be, once we see towards the end of next year how far inflation has come down, central banks may need to do quite a lot more in order to ensure that inflation comes down.”

Inflation hit 9% in the year to the end of April, the highest in 40 years according to estimates from the Office for National Statistics.

It was especially high in April due to the increase in the price cap on energy bills, which shot up 54% for the average household.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

By clicking ‘Create my account’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in