Bank of England: Interest Rate Policy

Baroness Kramer Excerpts

Wednesday 12th July 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I agree with my noble friend that the Bank of England should be and, indeed, is accountable for the decisions that it makes, but it is not for government to comment on the conduct or effectiveness of monetary policy. He is right that high levels of inflation and, therefore, high interest rates, are causing pain. That is why the Government are taking action to support people at this difficult time, including the mortgage charter, agreed by my right honourable friend the Chancellor, that covers around 90% of the market and gives people options when they are facing higher mortgage rates to make sure that their payments continue to be affordable.

[Baroness Kramer (LD)]

My Lords, I have great sympathy with the Question from the noble Lord, Lord Forsyth. I would like to hear from the Minister that there will be no attempt to compromise the independence of the Bank of England, but that that does not mean that improvements cannot be made; for example, to counter what many of us think is an underlying flaw of groupthink and lack of diversity that leads the Bank to decisions that could be made more optimal with a different set of parameters.

Does the Minister also recognise that the Government themselves could influence inflation far more effectively if they focused on doing so? For example—to name just three actions—they could have dealt with the staff shortages that have so driven inflation; they could have done a great deal more, much earlier, to deal with price gouging by many of our major supermarkets; and they could have kept in place the energy price support scheme, which helped SMEs hold down their prices. Will the Government then take responsibility for their share in not taking those steps to stem inflation?

[Baroness Penn (Con)]

On the noble Baroness’s first point, my initial Answer set out that the Government continue to be committed to the independence of the Bank of England. She is right that government policy can also affect inflation. The OBR said that the energy price guarantee brought inflation down by around two points. Our labour market supply measures, including expanding access to childcare, were the biggest supply side impact in a Budget that the OBR has ever measured. If we were to provide direct subsidies to mortgages, as the Liberal Democrats propose, that would have an inflationary effect, meaning that interest rates would be higher for longer.