The Bank of England has made “serious mistakes” in the fight against inflation and is facing a prolonged bout of painful price rises unless it acts immediately, its former Governor Lord King has warned.
Officials at Threadneedle Street fuelled a surge in prices with a money printing spree during the Covid pandemic, the crossbench peer said.
The idea that the current interest rate of 1pc, very low by historical standards, will have any significant impact when inflation is running at 7pc is “really very strange”, he added.
Andrew Bailey, the current Governor, is under growing political pressure for failing to prevent the crisis, and is now being scrutinised for his decision to allow staff to attend the office for just one day a week.
The Bank’s long-term target is for just half the working week to be spent in the office, The Daily Mail reported.
The revelation follows claims by Mr Bailey to MPs this week that he feels “helpless” to combat soaring inflation fuelled by the war in Ukraine.
Liam Fox, the former Cabinet minister, said: “It seems strange that in an inflationary crisis, so few key personnel are attending their place of work.”
It came as a dramatic fall in the number of people looking for work stoked fears that Britain is on the brink of an inflationary spiral amid surging pay growth and intense competition for staff.
Speaking to Andrew Marr on LBC, Lord King, who ran Threadneedle Street during the financial crash, said the current price surge is not something that can be fully prevented. Although inflation is likely to drop in 2023, he said it may take many years to fall back to the Bank’s 2pc target.
Asked whether the Bank of England had committed an error, Lord King said: “Central banks around the world have made serious mistakes in not acting much sooner. Including ours.
“Central bankers around the world are very confident that inflation will simply fall right back to the target. But when people come to set prices or bargain for wages, they won’t necessarily assume that inflation will come straight back down to 2pc.
“The idea that interest rates of 1pc are going to have much impact… is really very strange. They have to give a very strong signal they’re determined to get on top of the inflation problem.”
It came as official figures showed that businesses are attempting to fill a record number of vacancies by offering the highest pay rises for decades, but 7.1m people on the sidelines do not want a job.
Economists are concerned that sharply rising wages will drive prices higher in a self-sustaining inflationary boom, seriously undercutting living standards.
A record 1.3m job vacancies were on offer in the three months to April, the Office for National Statistics said – a higher number than the 1.26m people currently unemployed and looking for work, the first time there have ever been more positions advertised than jobseekers. The jobless rate dropped to 3.7pc in March, its lowest since 1974.
Businesses responded to by ramping up pay, with average earnings in March 9.9pc higher than they were a year earlier, in large part because of extra bonuses which were dished out in industries from finance to construction to manufacturing.
This is the biggest pay rise in records dating back 20 years, and means incomes climbed faster than the 7pc inflation rate in March.
But the increase was still not enough to tempt some people not looking for a job to go back to work.