THE GOVERNOR of the Bank of England, Andrew Bailey, has issued the starkest warning that the UK economy faces a massive inflationary spiral and that the Bank will ‘have to act’ – and fast.
This is the clearest indication by Bailey that the Bank is preparing a sharp increase in the interest rate in an attempt to hold back inflationary increases that have driven the Consumer Price Index (CPI) to over 4% – twice the Bank’s target of 2%.
Analysts are confidently predicting it will increase to nearer 6% by the New Year.
This surge in inflation has forced Bailey and the Bank to shift their position on any increase to interest rates that currently stand at the record low of 0.1%.
In July, Bailey was arguing that inflation was a temporary phenomenon, the result of UK capitalism ‘bouncing back’ after the end of lockdown, and would soon fall of its own accord, so, no need to drive up the cost of borrowing.
Two months later and Bailey can no longer ignore the fact that, far from being temporary, inflation is raging with energy prices skyrocketing along with housing and food costs while shortages of goods are already becoming apparent in supermarkets.
Already, inflation has led to a massive surge in the cost of living for workers and their families at a time when the Tories have slashed Universal Credit and imposed a wage freeze on the public sector.
Last week, Bailey was forced to acknowledge: ‘We have got some very big and unwanted price changes’ which could prove ‘very damaging’ if they become ‘embedded’ in the economy.
This has forced Bailey to signal an increase in the Bank’s interest rate, indicating that it would go up from 0.1% to 1% in the near future.
This is part of the desperate attempt to rein in the ‘emergency stimulus measures’ introduced by central banks across the capitalist world in the aftermath of the 2008 international banking crash.
Near zero levels of interest were accompanied by the central banks pumping out trillions of pounds, dollars and euros of worthless money into the banks and money markets under the Quantitative Easing (QE) scheme.
This was claimed by the central banks to be a ‘temporary’ measure to prevent banks and businesses going bust and collapsing capitalism in 2008, but it has gone on and increased for the past 13 years!
The Bank of England is still printing £3.4 billion a week to keep bankrupt British capitalism from going bust.
It is the near zero interest rates that have made the interest repayment of all the debt run up by government, companies and the international financiers affordable.
But all this free money that has kept capitalism from collapse in the short-term has driven up inflation in a never ending spiral.
But pushing up interest rates, even by a seemingly small amount, will bring the entire debt mountain crashing down, with companies that exist entirely through cheap debt crashing – along with all the hedge funds that use debt to fuel their multi-billion pound takeovers.
It will drive up the cost of financing the record £2.3 trillion debt of the British government, necessitating the Tories to massively increase the savage austerity cuts already in the pipeline to balance the books.
Pushing up interest rates to try to stave off a huge surge in inflation will push British capitalism into a massive recession from which it cannot escape.
With no way out of its crisis through ‘managing the money supply’ as the Bank has tried, the only way for capitalism to survive is to inflict its crisis on the backs of workers and their families through mass unemployment, wage cutting and the destruction of the welfare state.
The working class will not stand to see their lives destroyed by bankrupt capitalism but will demand that their unions fight by organising a general strike to bring down the Tories and bring in a workers’ government that will expropriate the bosses and bankers and replace bankrupt capitalism with a socialist planned economy.