Minford lashes out at Bank of England failures over market turmoil

Kwasi Kwarteng declares he's 'not going anywhere'

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The economist behind Liz Truss’ unravelling economic plan has lashed out at the Bank of England Governor for the market turmoil which appears to have left the Prime Minister on the brink of being thrown out of office. Professor Patrick Minford, a fellow of the Centre for Brexit Policy, and former adviser to Margaret Thatcher, accused the bank’s governor of talking “demonstrable nonsense” in claiming he could not take measures to tackle the market turmoil.

The intervention has come on a day of more market issues which, according to sources, has made the Prime Minister reconsider her entire economic strategy.

Having already U-turned on plans to scrap the top 45p rate of income tax for the highest earners, Ms Truss is said to be planning on allowing Rishi Sunak’s Corporatation Tax hike to 25 percent to go ahead after it was cancelled in the mini-budget.

Chancellor Kwasi Kwarteng today visited the International Monetary Fund (IMF) in Washington DC and declared he would not be quitting his job.

But Tory MPs questioned whether the Truss government can now survive next week and are looking at the financial statement on October 31 as a point where they may force her out.

In a provocative Tweet, former Chief Whip Julian Smith, put the word “confidence” on social media with its dictionary definition – “the feeling or belief that one can have faith in or rely on someone or something.”

It was meant as a sign that the Parliamentary Conservative Party has lost confidence in the Prime Minister.

In an exclusive comment to Express.co.uk, Professor Minford accused government civil servants of trying to undermine the Government’s policy.

He said: “The press is reporting today that ‘top officials’ are arguing for a U-turn on the government’s tax policies to stop the turmoil in the market for long-term government bonds or ‘gilts’.

“Interest rates there are directly linked to long-term mortgage rates, a clear political pressure point that these officials are keen to exploit, since they are part and parcel of the opposition to the government’s essential new policies for growth.”

But turning his focus on Mr Bailey and the Bank of England he insisted that it was their job to calm the markets not the Government’s to change policy. 

He said: “The market turmoil can be dealt with by the Bank of England.  The Bank’s function is to maintain order in the government bond markets – that was why it was originally created.

“It can readily and effectively quell the turmoil by market intervention; buying long gilts in large amounts (known as Quantitative Easing or QE).

“We saw this at work two weeks ago when the pension problem surfaced. Gilt long rates fell nearly 100 basis points (1 percent) on that intervention. We also saw it at work with  the  Covid crisis when huge gilt sales were made by the Treasury to fund the costs, and Bank QE greatly helped the market to absorb these sales.”

Professor Minford’s comments feed into a growing feeling that Ms Truss’ economic policy has been the victim of a coordinated effort to undermine it.

The Professor of Applied Economics at Cardiff University made it clear that he thinks the Bank of England Governor can and should do more. 

He said: “Andrew Bailey, the Bank’s Governor, has said he cannot do any more QE because it threatens his inflation mandate. But this is demonstrable nonsense. Money is already very tight, as shown by near zero growth in money supply (M4) and other indicators like equity prices and the housing market.

“Also, the world economy is slowing due to very tight money worldwide, which is driving commodity prices (even gas) down; so inflation will fall next year for sure, here as in most other countries too.

“The Bank needs to raise short-term interest rates to buttress its credibility and show its determination to reduce inflation; it should do this by raising via bank rate, backed up by sales of short term bonds and Treasury bills in the short-term market. The next Monetary Policy Committee meeting should raise bank rate solidly in this vein.

“The Bank is independent in setting interest rates but it is also under a mandate to maintain orderly markets and financial stability; as a state-owned institution it is under the government’s overall control and must cooperate with government policy. So in this matter, just as in the Covid crisis, the Treasury needs to instruct the Bank to carry out this strategy needed to maintain market order.”

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Professor Minford also made it clear he thinks that if the short term problems are resolved then the Treasury can cope with the debt the Government has taken on.

He said: “Once market turmoil in gilts is quelled this way, attention can turn to the longer term question of how the Treasury will underpin government debt solvency under the new and correct criterion for fiscal sustainability: that the debt/GDP ratio should be trending down in the long term to a safe level of around 50 percent.

“Market fears that this might not be met have contributed to the market turmoil. But in my view these fears are groundless. According to projections using the models we have developed at Cardiff University, the debt ratio is to come down to around 50% in a decade under existing tax plans and without any new ‘austerity’ programme of spending cuts.

“It is vital that the policies we now have for supporting economic growth are not derailed by market instability.

“We have the tools to eliminate this. Then we can move on to delivery of these policies and the much improved outlook that lies beyond, with inflation down, growth up and interest rates back at a normal level.”

The concrns though have hit confidence in the Governent with a Techne UK poll last week showing that 50 percent believe Labour would be better at managing the economy compared to 28 percent the Conservatives.

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