Unrepentant Bank of England refuses to learn from its failures

Yet if it had so little impact, why did both Switzerland and Japan, which were subjected to the same external shocks but did not see anything like the same degree of money growth, have a less severe inflationary experience?

In any case, the Bank of England’s latest Monetary Policy Report devotes an entire pull-out subsection to “assessing developments in broad money”.

It’s hard to recall the last time the Bank made any more than a passing reference to the money supply in its quarterly policy reports – though some members of the Monetary Policy Committee have admittedly addressed the issue in speeches.

So I suppose the pull-out treatment signifies at least lip service to the alternative view and should therefore be counted as progress. You’ll also be pleased to know that according to the report, “the Committee monitors developments in aggregate and sectoral broad money data alongside a range of other indicators to inform its views on spending and inflationary trends”.

This is news to most monetarists, who have long thought of the Bank of England as a closed shop of new Keynesian thinking.

A blinding flash on the road to Damascus, then? Sadly not.

Having conceded that maybe developments in money growth are something worth considering after all, the report then goes on to largely dismiss their relevance.

Money growth can indeed “provide a signal about longer-run trends in activity and inflation”, but “the relationship is less stable over shorter horizons”.

Really? The Government’s response to the pandemic was to close down large parts of the economy, resulting in a drop in output of around 20pc. This was a huge supply-side shock which the Government and the Bank of England responded to with an equally massive fiscal and monetary stimulus.

Yet the shock to demand and supply was always going to be a temporary interruption; the stimulus was a permanent one-off addition.

Common sense alone would suggest that this mismatch must have played at least some part in the subsequent inflation, as some of the speakers in a House of Lords debate on Bank of England independence argued earlier this month.

Newly created money that couldn’t be spent accumulated in people’s bank accounts, so that when things opened up again, there was a surge of demand into an economy whose supply had been impaired by lockdown.