the times | Tuesday May 17 2022 33
Business
Mehreen Khan Economics Editor
The Bank of England is facing its
biggest test of credibility in 25 years of
independence, its governor has admit-
ted as inflation heads above 10 per cent.
Launching a defence of the Bank’s
inflation-targeting framework, Andrew
Bailey told the Treasury select commit-
tee yesterday: “This is the biggest test of
the Bank’s policy framework that we’ve
had in 25 years.
“What I would say to these [critics] is
that this is when both independence
and the [inflation] targeting framework
matter more than ever.”
Bailey told MPs that he was aware of
reports that cabinet ministers were
questioning the Bank’s independence
from the Treasury as rate-setters
grapple with the worst inflation to hit
the economy in 30 years. However, he
added: “No member of the government
has raised [criticism] with me.”
Bailey said that it made him “very,
very uncomfortable” to admit that
monetary policy could do little to bring
down inflation, which is being driven
mainly by external factors such as
rising food and energy prices during the
war in Ukraine. “It is a very difficult
place to be in to say that there will be
10 per cent inflation and there is noth-
ing we can do about 80 per cent of it,” he
said.
If the causes of rising inflation were
domestic, higher interest rates would
be a more effective monetary policy
tool, experts say.
Bailey said it had been difficult for
policymakers to foresee multiple
shocks to the economy from the Brexit
vote, the Covid pandemic and the war
in Ukraine. “We can’t predict things likewars. The sequence of shocks which
have come one after another with no
gaps in between them is almost unprec-
edented,” he said. Inflation is expected
to peak at 10.2 per cent this year, accord-
ing to the Bank’s forecasts, the highest
since comparable records began in 1992
and more than five times the Bank’s
2 per cent target.
The UK’s inflationary spiral has been
compared with the 1970s, when a global
oil crisis led to sustained double-digit
inflation and rapidly rising interest
rates to engineer an economic slow-
down. Bailey said that the “difference
between now and the 1970s is that we
didn’t have a nominal anchor, we didn’t
have a monetary policy anchor, and the
Seventies’ inflation was spread across
the whole decade.”
Some Conservative MPs have
accused the Bank of being late to react¤commoditiescommodities currenciescurrencies
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Brent crude (6pm)
$113.25 (+1.92)Apr 12 22 May 3 11 Apr 14 25 May 3 11 Apr 13 25 May 3 11 Apr 14 25 May 3 11 Apr 13 25 May 3 11 Apr 13 25 May 3 11Our policies have only limited effect, admits Bailey
Rising inflation ‘biggest
test of Bank for 25 years’
to rising inflation and of sending mixed
messages to the public about whether
higher prices would be sustained. Liam
Fox, a former cabinet minister, has
called for an MP-led investigation into
its inflation policy and he told the Com-
mons that rate-setters had “persisted
beyond any rational interpretation of
the data to tell us that inflation was
transient”.
The Bank expects inflation to fall
below 2 per cent in three years’ time,
conditional on a market-expected path
of future interest rates. Its nine-strong
monetary policy committee raised in-
terest rates to 1 per cent this month, the
highest since 2009, having tightened
monetary policy for four consecutive
meetings for the first time in its history.
Three members voted for a rate in-
crease to 1.25 per cent.
Patrick Hosking, page 37ALEXANDER ZEMLIANICHENKO JR/XINHUA/ALAMYSFO to pay
damages
over Kazakh
investigation
Jonathan Ames Legal EditorBritain’s top fraud investigators face
paying up to £70 million in damages
after a judge found that they had com-
mitted a “serious breach” of their duties
during a corruption inquiry.
In the latest blow for the Serious
Fraud Office, a judge ruled that senior
investigators — including the agency’s
then-director — had wrongly commu-
nicated with a City lawyer acting for the
Eurasian Natural Resources Corpora-
tion, which had unsuccessfully been
investigated for fraud by the agency.
The mining conglomerate had sued
the fraud agency for misfeasance in
public office over the way it had con-
ducted the inquiry into its operations in
Kazakhstan. ENRC also brought an
action for breach of contract against
Neil Gerrard, the City lawyer, and
Dechert, his firm, which had advised it
during the inquiry.
In the ENRC ruling, Mr Justice
Waksman said the fraud office had
breached its duties by “engaging with
and taking information” from Gerrard,
which he said “was plainly unauthor-
ised and against his client’s interests”.
He concluded that the City solicitor
— who retired from the London office
of the Philadelphia firm at the end of
2020 — was the instigator of leaks to
the media and had been “negligent”.
Yesterday’s ruling from the High
Court in London means that the SFO
will be forced to pay compensation. It is
also anticipated that Dechert will be hit
with a damages bill of more than
£100 million.
The ruling came as the SFO and Lisa
Osofsky, its beleaguered director, await
the outcome of an independent inves-
tigation into a series of high-profile
prosecution failures. Sir David Calvert-
Smith, a former director of public
prosecutions and High Court judge
who is leading that inquiry, is expected
to report shortly.
In 2011, the mining company
instructed Gerrard to conduct an
internal investigation into allegations
of corruption.
It is now seeking damages over alle-
gations that the City lawyer secretly
disclosed confidential details of that
investigation to contacts at the SFO —
including the agency’s director at the
time, Richard Alderman — in an
attempt to trigger an external inquiry
into the mining group that would
increase his firm’s legal fees.
Investigators at the fraud office had
been considering potential fraud
charges at the time over the Kazakh
operation’s acquisition of mining assets
in the Democratic Republic of theT
he invasion of
Ukraine and
western
sanctions have
brought
Renault’s majority
ownership of Lada,
Russia’s best-known car
marque, to an end.
The French carmaker is
pulling out of Russia and
is selling its 68 per cent
holding in AvtoVaz,
Lada’s parent company,
for one rouble — just over
a penny — to the Central
Research and
Development Automobile
and Engine Institute.
Lada was conceived in
the Soviet era during
Leonid Brezhnev’s
premiership in an initial
collaboration with Gianni
Agnelli, later the
godfather of the Italian
car industry as the head
of Fiat. It went into
production during the oil
crisis of 1973, and it
became synonymous with
the eastern bloc.Renault sells
ownership of
Russia’s Lada
for a rouble
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