Mervyn King

The Bank of England has to act to prevent higher inflation

The Bank of England has to act to prevent higher inflation
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To Windsor for Garter Day, the first since 2019. With a strong voice and smiles for us all, the Queen presided over the investiture of three new Knights – Tony Blair, Baroness Amos and, as a Royal Lady of the Order, the Duchess of Cornwall – in the small Throne Room. After luncheon with the royal family in the Waterloo Chamber, we processed to St George’s Chapel for a service during which the new Knights were formally installed. It is a splendid pageant appreciated by the large crowd of onlookers who look with amazement at our outfits. We wear morning dress, garter star, a dark-blue velvet mantle, a rather heavy gold collar and a black velvet hat with a plume of white ostrich feathers. The British do like dressing up.

Although rarely used, the governor’s eyebrows remain part of the Bank of England’s armoury. Since I left in 2013, mine have been resting. But the latest inflation rate of 9 per cent led them to rise sharply. Time to have a word with those members of the Monetary Policy Committee who only last year were keen on negative interest rates. As in the US, inflation is spreading beyond the energy and food sectors to most of the economy. An extremely tight labour market and a surge in industrial disputes are pushing up wages. The Bank will surely act to prevent a continuation of high inflation.

We face a difficult couple of years, reminiscent of the 1970s. A legacy of Covid is that around half a million people have dropped out of the labour force. Their return would ease inflationary pressures and boost output. But there is no pot of gold at the end of the rainbow. The American economist Robert Solow once said that economics requires three qualities: faith, hope and clarity, and the greatest of these is clarity. Our leaders need to give us a clear narrative explaining why recent events will inevitably lower our national standard of living, how that burden will be shared, why it is important to bring inflation down, and why measures to raise economic growth and reduce regional disparities will take many years to come to fruition but will work only if we make a start now.

Last week I travelled to Hanko in Finland for my stepdaughter’s 50th birthday party. There were many impressive speeches, and for my benefit all were in English, since everyone else spoke three or more languages. In the World Happiness Report of 2022, Finland again topped the rankings. A better description would be that Finns are the most contented people. Happiness is often a fleeting emotion; contentment is more enduring. Despite a very long border with Russia, Finns feel secure. Their history has led them to prepare for emergencies and focus on ensuring the resilience of their economy, defence and welfare. My Finnish friends were too polite to point out that their armed forces are three times the size of ours. Which is why the joint political declaration on 11 May that should the UK or Finland suffer ‘a disaster or an attack’ the other would come to the rescue is probably of more consolation to us than them.

The small churchyard of St Mary’s at Norton in Kent witnessed a brief but moving private ceremony earlier this month when the Finnish ambassador and his defence attaché laid a wreath on the grave of the daughter of Marshal Mannerheim, Finland’s greatest wartime leader, president and statesman, and also a good friend of Britain. Anastasie Mannerheim, born in St Petersburg, was originally Orthodox but converted to Catholicism and became a Carmelite nun in England. In his will, Mannerheim requested that after his daughter’s death the Finnish army should look after her grave. Each year on his birthday his wish is honoured. Mannerheim was personally close to the Romanoffs and St Mary’s contains a number of their graves. The senior surviving member, the remarkable Princess Olga Romanoff who lives nearby in the equally remarkable Provender House (open to the public at certain times), escorted us to the grave and joined us for lunch in the Three Mariners pub in Oare.

At the Royal Festival Hall, I attended the final concert of the London season of the Philharmonia Orchestra, of which I am the chair. Under our new principal conductor Santtu-Matias Rouvali, the players gave an electrifying performance of Mahler’s Resurrection Symphony. Its themes matched the orchestra’s own experience of redemption after lockdown. Santtu is one of the many outstanding conductors who have emerged from Finland in the past decade. Audiences respond with enthusiasm to his style and musicality. He dances on the podium. With Santtu there, the future of the orchestra is bright.

Written byMervyn King

Mervyn King was Governor of the Bank of England from 2003 to 2013. He is the author of The End of Alchemy (2016) and (with John Kay) Radical Uncertainty (2020).

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