BOE Londons
LONDON: The Bank of England (BoE) (pic) should prepare to end interest-rate hikes before a likely recession early next year, according to Tim Congdon, the veteran UK monetarist who was an early prophet of the global inflation shock.
Citing a collapse in money-supply growth – the metric whose spike in 2020 first led him to warn of a coming tide of surging prices – he reckons officials should only stray “a little more” above the benchmark’s current level of 1%, and that an economic slump is already both probable and necessary.
Congdon spoke earlier this month in a wide-ranging interview with Bloomberg where, in his customary undiplomatic style, he railed against central bankers including BoE governor Andrew Bailey, argued that calls for wage restraint among workers were “wicked” and slammed the economics profession that he has long eschewed.
A one-time adviser on the transformation of macroeconomic policy to Margaret Thatcher’s Conservative government in the 1980s, Congdon was one of the first to predict after the onset of the pandemic that the United Kingdom and the United States would face historic levels of price growth. It was June 2020 when he made that forecast of double-digit inflation, just as economies on both sides of the Atlantic were headed for recession and prices were hitting the floor.
“It was the biggest call of my career,” he said. “I basically got it right.”
Other such soothsayers, including former BoE policy maker Charles Goodhart, and subsequently former Treasury secretary Lawrence Summers and Olivier Blanchard, a former chief economist at the International Monetary Fund, have burnished their reputation. But Congdon remains out in the cold, with the monetarism he practises – the theory that inflation can be controlled by managing the money supply – largely ignored by the economics community for at least two decades.
Over the years, central banks downgraded data on monetary aggregates and Congdon became a relic, most notable recently as economics spokesman for the pro-Brexit UK Independence Party.
But his ideas and those of his economic hero, the Nobel-Prize winner Milton Friedman, have regained traction now that inflation has hit 40-year highs of 9% in the United Kingdom and 8.6% in the United States.
Ray Dalio, founder of Bridgewater Associates, has warned about “monetary inflation” stoked by “a lot of debt and money.” — Bloomberg
