Andrew Bailey and the Art of Being Wrong.
In ancient Egypt, a high priest was the chief priest of any of the many gods revered by the Egyptians. They had such influence of the day that their duties extended beyond religious matters. They advised Pharaohs on political and social matters.
In current times monetary policy is set on behalf of the government by member of the Bank of England’s Monetary Policy Committee (MPC). These members supposedly have expertise in the field of economics and monetary policy. In reality they have limited commercial or real world experience outside of government or academia.
Andrew Bailey, the chair of the MPC has been the Governor of the Bank of England since March 2020. Central bankers have the air of being a similar intermediary between high finance and managing the economy. At a whim they can change monetary policy or interest rates for the rest of the mere mortals in the UK. However, the following recent misjudgments show that we should be wary of the prognostications and statements from Bailey.
1. “Inflation is Transitory”
Andrew Bailey made a multitude of early assumptions upon rising inflation in late 2021 that the pressures were temporary, and that the price rises would fall. However inflation spiraled in 2022 to as high as 10% in 2022 before falling. However inflation has continued to rise and has picked up further in 2024.
So not only have prices not fallen they have continued to rise and the current sings of rising commodity prices indicates that the UK is in for a further bout of inflation.
Had the MPC foreseen the short term interest rate could have been. Either way this brings into question Bailey’s creditability of chair of the MPC.
2. The “wage price spiral” that never was.
Milton Friedman famously said: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
In May 2023, after twelve interest rate hikes it was clear that inflation wasn’t going anywhere, and in fact prices were still steadily rising. Of course, Bailey realised his series bank rate hikes were not sufficient to tackle inflation. The MPC couldn’t raise rates any further as they would have been an outlier compared to other central banks and in any event it would have likely caused stress in the credit markets.
What he would have you think is that the inflation being experienced was no longer because of the constant quantitative easing and low interests that the BoE undertook (i.e. money printing), but because of those pesky productive workers achieving greater pay for their labour. Even though virtually every worker suffered real pay decreases over that time.
In any event, inflation can only be caused by monetary expansion (central banks ‘printing’ money). If nothing else this shows the disconnect between Baileys narrative and the economic reality.
3. Baileys Mishandling of the LDI crisis
In November 2022 Britain experienced a liquidity crisis in its pension industry. Essentially a spike in GILT (UK government bonds) rates resulted in pension funds being margin called on loans they had drawn in order to purchase low yielding bonds. The fall in value of GILTs resulted in the pension funds being in negative equity on these positions, the lenders want additional collateral or the positions closed out.
To rectify this the pension funds had to liquidate their Government bond holding positions. Of course this rush to exit positions caused further market panic. You might think what has this all got to do with Bailey, well the BoE stepped in as a bond buyer of last resort. Furthermore, as this was unfolding Bailey felt the process should be accelerated.
“You’ve got three days” is what he told the pension fund market. This caused further panic and essentially immediate fire sales. Ultimately this had the effect of the BoE needing to buy more bonds.
Again, Bailey could have provided more measured guidance and his statement (and ultimately poor judgement) had the opposite impact of what he desired.
4. The Brexit and Covid Misjudgments
Baileys pronouncements were also questionable prior to his appointment of Governor of the Bank of England. In his role as CEO of the FCA, Bailey had said that the impact of Brexit was going to be minimal. However, trade restrictions (self) imposed on the UK have generally resulted in a negative impact. Of course, the removal of freedom of movement of people between the UK and the EU has made recruitment increasingly difficult for businesses to grow or even operate effectively.
In the early part of the Covid-19 pandemic, Bailey initially downplayed the inflationary risks associated with ultra-loose monetary policy. In 2020 and early 2021, the Bank of England implemented an unprecedented round of quantitative easing (QE), purchasing £450 billion of government bonds in a very short window.
The monetary expansion / stimulus essentially drove the asset the price boom that occurred in late 2020 and 2021. Bailey however blamed the increases in prices were due to supply chains. As recently as February 2025 he has said that the increase in inflation will be “temporary”, without giving any reasons as to why. This ongoing pattern of unclear / contradictory narratives, and weak justifications has left businesses, consumers, and markets struggling to interpret the Bank’s actual stance.
5. “Stagflation doesn’t have a meaning”
Most ludicrous and laughable of all, Bailey in a response to a question after the February 2025 MPC meeting declared that he doesn’t recognise the term stagflation, because “it doesn’t have a precise meaning”. This is most clearly an attempt to hand off a question he doesn’t want to answer. Bailey knows that stagflation is the worst case scenario for the BoE, the banking sector and the economy.
Stagflation is a conventional term and is widely accepted by most economists outside of the public sector. That he doesn’t understand it let alone acknowledge should be deeply concerning. Bailey and his comrades on the MPC hope that by ignoring the looming problem it will go away.
Unfortunately for us all this strategy is unlikely to be successful. Had Mr. Bailey studied some UK history he would know that the 1970’s proved a devastating time. The nation was gripped by inflation all through the 1970’s which was coupled with a severe recessionary environment (think constant price increases, mass unemployment and widespread business failures). Indeed the UK Government famously called the IMF for a $3.9bn loan in 1975 in order to stabilise the country’s deteriorating finances.
Like the 1970’s we are in the midst of inflation and with little real growth outside of ever increasing government expenditure.
To combat this the Government of the day increased the base rate from a low of 5% in September 1971 to a peak of 16% in July 1980. If Bailey does not understand this term nor understand this situation is likely to manifest again then everyone holding GB denominated assets should be concerned.
Conclusion
Andrew Bailey has managed to make being wrong an artform.
Imagine a business executive in the private sector getting so many strategic decisions wrong (and persistently so), and still having the trust of shareholders and customers.
Similar to the high priests of Ancient Egypt however, Bailey wields great influence over the UK’s people and markets through his governance of monetary policy. Due to political and shifting social changes in Egypt, and the obvious signs that their prognostications were usually wrong, the Ancient Egyptians gradually lost faith in its high priests. Bailey is at risk of suffering a similar faith.
Through the auspices of base rates, the MPC are in effect controlling the price of money, and can increase or decrease its supply without expending any resources (think the Covid era stimulus). In reality the money supply only ever increases over the long run.
The implicit implication from Baileys track record is he is purposefully ignoring the economic threats facing the UK, and that the BoE is totally unprepared for years more inflation. Bailey’s track record shows a pattern of ‘deflect and blame’, and acting ‘post ante’ with stimulus. The recurring outcome is an ever debased GBP.
This not a problem confined to the UK however with near all Western central banks in the same position. Ultimately, this only strengthens the case for holding real assets as a means to preserve purchasing power.
