Bank of England: Interest Rate Policy

Lord Howell of Guildford Excerpts

Wednesday 12th July 2023 Lords Chamber

[Baroness Penn (Con)]

The Bank of England is accountable to both the Government and Parliament. The noble Baroness referred to a report being done by the Economic Affairs Committee in this House. I am sure we will pay close attention to the outcomes of that.

[Lord Howell of Guildford (Con)]

Has it occurred to my noble friend’s Treasury colleagues that the stream of increases in Bank of England interest rates is both deflationary, obviously, and inflationary, in that every 1% increase in the interest rate adds between £15 billion and £20 billion to government debt servicing? Also, since the Government have up to £30 billion or £50 billion per increase in the RPI level, any impact of these interest rate increases on RPI further increases government spending. We really are looking at a double-edged sword. Other, more direct measures are obviously needed to reduce RPI, the pressure for pay demands and all sorts of other inflationary effects.

[Baroness Penn (Con)]

While I will not be tempted by my noble friend to comment on the conduct of monetary policy, I agree that, in the context of high inflation, fiscal responsibility and keeping government borrowing under control are absolutely essential. That is why the Government are committed to that.