Bank of England Defends Pandemic Money Printing as Essential Measure Amid Criticism

Andrew Bailey, Governor of the Bank of England, has strongly defended the institution’s quantitative easing programme undertaken during the Covid pandemic, citing it as a vital intervention to avert a severe cash crisis in Britain. Speaking at the Covid Inquiry, led by Baroness Heather Hallett, Bailey outlined the extreme financial stress faced by the banking system in early 2020. According to Bailey, without the Bank’s intervention, the overwhelming demand for cash risked company failures and potentially disorderly economic conditions with substantial risks for the public.

Bailey’s remarks followed criticism from his predecessor, Lord King, who argued that the Bank’s monetary expansion during the pandemic was a major factor behind the highest inflation the United Kingdom has seen in over forty years. Lord King contended that the Bank injected excessive liquidity into the economy by continuing to purchase government debt well beyond the initial emergency in March 2020, unnecessarily flooding markets with cheap money.

The Bank of England bought £450 billion in government debt from private sector firms in three phases throughout 2020, far exceeding the initial £200 billion tranche deployed at the pandemic’s onset. Bailey explained that the rush for liquidity was so acute that even gold was shunned as a safe haven, noting that UK firms withdrew cash at thirty times the rate seen in any single month of 2019. He insisted that failing to act would have resulted in the current inquiry asking far tougher questions about the collapse of businesses and market stability.

Inflation in the UK surged to 11.1 percent in October 2022, more than five times above the Bank’s official two percent target, and the highest figure since 1981. Lord King maintained that the situation was aggravated by the Bank’s reluctance to tighten monetary policy and raise interest rates until after the inflation surge was well underway. He asserted that the monetary response should have been unwound as soon as market conditions stabilised, instead of persisting throughout the rest of 2020.

Lord King attributed the Bank’s missteps to a fundamental misunderstanding of the economic shock caused by the pandemic. He observed that the reduction in consumer spending was due to restrictions and supply shortages, rather than a lack of demand. As conditions normalised, pent-up consumer demand contributed to inflationary pressures alongside the elevated money supply. King described the episode as an exemplar of too much money chasing too few goods.

Bailey reaffirmed the Bank’s responsibilities as a public institution, stating that standing aside during the crisis was unacceptable given the potential for widespread economic harm. He emphasised that while the decisions taken were substantial, they were motivated by the need to prevent deeper instability and failings across the financial system.