Record high inflation was caused by the Bank of England keeping interest rates too low for too long, according to its former head.
Lord Mervyn King said inflation has now been tamed, but criticised all central banks for failing to act fast enough initially.
Speaking to BBC Radio Four’s Broadcasting House ahead of the Budget next month, he also said there are “bound to be some changes” to fiscal rules.
He criticised the previous government’s national insurance cut and said Labour should reverse it.
Asked if the Bank of England kept rates “too low for too long”, Lord King said: “Yes, and that’s why we had inflation.”
“But they raised interest rates like all other central banks – it wasn’t just the Bank of England – and inflation is now back under control,” he added.
The crossbench peer added that interest rates were now “in the right ballpark”.
At its most recent meeting in September, the Bank chose to keep the base rate – which determines mortgage rates, credit card rates, and savings rates – at 5%.
The next meeting will happen in November.
On the topic of the Budget, Lord King predicted “a number of half measures” because the government has committed itself both to public sector investment and to spending limits.
As such, he expected the government may chose to tweak those restrictions.
“There’s bound to be some change to the fiscal rules,” he said.
“The ratio of national debt to national income is the right metric by which to judge whether we’re on a sustainable path, but to judge it by reference to a forecast five years ahead – a rolling five-year horizon – doesn’t make any sense.
“The right thing to do would be to commit to having the ratio of debt to national income falling by the end of this Parliament, a fixed date.”
Lord King was also critical of the Labour for committing to the Conservatives’ national insurance cut.
“I don’t understand why the previous government cut national insurance contributions,” he said.
“I think that was irresponsible, and I think it’s equally irresponsible for the then opposition, now government, to promise not to reverse that.”
