All Souls lecture slides

John Redwood’s Lecture, All Souls College, Oxford (Slide 1)
‘The great western inflation should lead to changes at the Central Banks’
26 May 2023
11:00 – 12:30
All Soul College, Old Library, Oxford

Inflation, Consumer Price Index 2020-2023 (Slide 2)
The inflation rates demonstrate that whilst all countries faced dearer energy from the war in Ukraine, the 3 western countries faced inflation peaking at five times target whilst the two Asian majors kept inflation near the 2% target

Year UK Euro area US China Japan
2020 1.79% 0.29% 1.7% 2.39% (0.03%)
2021 0.85% 2.45% 1.4% 0.85% (0.2%)
2022 7.8% 8.31% 6.5% 2% 2.5%
2023 10.1% 6.9% 6% 2.9% 2.9%

Central Bank interest rates 2020-23 (Slide 3)

The Bank of Japan kept interest rates very low throughout, enforced by their policy of Yield Curve control

The Peoples Bank of China kept rates around 4% throughout, with some small cuts as the economy slowed
The other 3 took rates down to around zero, held them there, and then pushed them up sharply after inflation had risen to several times target

Year UK Euro area US China Japan
2020 0.1% 0.01% 0.36% 3.65% (0.1%)
2021 0.25% 0.01% 0.08% 3.85% (0.1%)
2022 3.5% 0.5% 1.68% 4.3% (0.1%)
2023 4.25% 3.25% 4.59% 3.65% (0.1%)

Slide 5

Japan and China kept money growth to similar levels that applied before covid lockdowns.
The 3 western Banks stimulated rapid growth in money and credit over the covid period

Quantitative easing and tightening (Slide 6)
The US, UK and Euro area undertook substantial QE 2020 to 2022. All three started Quantitative tightening 2022-23.
China undertook neither Japan continued with Quantitative easing throughout

The Chinese critique of the Fed and ECB (Slide 7)

It opposes “launching a deluge of strong stimulus policies “ that bring about asset bubbles, excessive investment or debt escalation
Aims to keep the size of its balance sheet stable to avoid inflation and to keep financial strength to be able to act as lender of last resort.
“held meetings to analyse the money and credit situation”
Has a target to grow money and credit in line with nominal GDP growth, and to keep inflation around 2%.
Shows a graph comparing the growth of the Fed and ECB balance sheets with the stability of its own

The defence of the leading western central banks (Slide 8)
– They claim they are independent of government
– They forecast inflation and target it directly based on their forecasts
– Their forecast of inflation is based on assessments of capacity utilisation, with special emphasis on levels of unemployment
– They claimed they needed to undertake QE when they hit zero on rates

Are these banks independent? (Slide 9)
– Changes at Federal reserve Board on change of President
– US twin mandate of employment and inflation
– UK Bank of England requires Chancellor to approve all bond changes, and to underwrite all QE/QT transactions
-ECB “will do whatever it takes” to ensure the survival of the Euro and the union scheme

Why did these western banks get their inflation forecasts so wrong? (Slide 10)
– They take a national rather than an international view of pressures, yet capacity includes imports
– Unemployment is not necessarily a proxy for capacity utilisation
– Judging capacity utilisation is very difficult – the shortage of one small part for a car can prevent production of many vehicles

Is Quantitative easing inflationary? (Slide 11)
– Is designed to inflate the prices of assets
– It created an asset bubble, with dearer bonds spilling over into dearer shares and property
– In due course the extra cash and higher asset values led to more spending and credit

Are there dangers in Quantitative tightening? (Slide 12)
– Silicon Valley Bank brought down by weakness in the bond market
– UK LDI funds became distressed shortly after the announcement of QT and falls in gilt market
– QT is deflationary, just as QE is inflationary

Why did 3 central banks want to lose so much money in bonds? (Slide 13)
– The central banks bought up more and more bonds at excessively high prices. They then increased interest rates, signalled the wish to see bonds lower and then started selling bonds at a loss.
– The Fed says it will just put the losses on its balance sheet. They do not matter. It can always create money for its needs, however much it has lost
– The Bank of England says the Treasury/taxpayers have to reimburse it for all losses to avoid weakness on its balance sheet          -The ECB says 80% of the losses will be owned by the member states Central Banks, subordinate institutions under the ECB in the system of Euro area CBs.

Quantitative tightening (Slide 14)

Federal Reserve Board
-Took its balance sheet from $3.759 tn in August 2019 to a peak of $8.965 tn in April 2011. ( plus 138%)
-Now at $8.593 tn, up from $8.339 tn in March 2023.

European Central Bank
– Has an accumulated bond holding of Euro 3.23 tn under its Asset Purchase Programme, and Euro 1.71 tn under its Pandemic Purchase Programme.
– Balance sheet Euro 7.7 tn

Bank of England
– Reached a peak holding of £895bn. Added £450 bn over covid period.
– Ran down holdings by £38bn Feb to September 2022 from repayments. Now undertaking an £80 bn a year QT programme.
– Bank balance sheet current £1.05 tn

Bank of England inflation (Slide 15)
– May 2021 forecast 2% inflation in two years time if kept rates at 0.1% with Quantitative easing – outturn 10%
– May 2022 forecast 2% inflation in two years time with rates at 1% rising to 2.5%
– May 2023 forecast 2% inflation in two years time with rates at 4.5% and a major Quantitative tightening programme

Bank of England economic forecasts and models (Slide 16)
– The Bank sets out to predict inflation by forming a view of capacity in the economy and using a concept of capacity utilisation to assess whether the economy is running hot or cold. – – Unemployment is a crucial proxy for the judgement of capacity utilisation.
– The concept is based around the UK national economy. It finds it difficult to handle the international dimension in a very open economy which allows the UK to access global capacity for many items.
– It dos not take into account the impact on demand and prices of credit growth supplementing incomes.
– It fails to report or comment on money and credit growth


  1. Ian B
    June 12, 2023

    What a mess, ego and self gratification interfering through a spurious back door. When the taxpayer pays, they are more than just entitled to see all outcomes from the use of their money has accountability and responsibility attached. In practice all these Governments are doing is hiding through deception trying to distance themselves from their own personal inability to ‘manage’.

    Its no wonder that ‘democracy’ is just a word to be used at election time, ignored, shunned and denied at all other times.

  2. Norm
    June 12, 2023

    Will any of this go in sny way to reducing the number of food banks up and down the country – I doubt it very much?

    1. Ken Marshall
      June 13, 2023

      Norm, John wants to talk about the policies of central banks in Japan, please do not mention the consequences of the policies of the UK governments since the Conservatives took power 13 years ago

  3. mancunius
    June 12, 2023

    Sir John, Have you considered that the principal actors in the UK economy are deliberately hobbling our economy under orders from supranational forces?
    What is your alternative explanation? That they are so remarkably low in intelligence and so poorly educated in economic basics that they are utterly incapable of self-editing observation and strategy?
    There must surely be a limit to the number of times they can blame their missteps on ‘Brexit’.

    1. TedGray
      June 13, 2023

      Mr Redwood’s prescription was followed TO THE LETTER by Liz Truss. Remember how that worked out?

      Reply Not so. The draft budget here was different to that delivered. Have you read anything I have written about the actions of the Bank?

  4. BMargaret
    June 12, 2023

    Knowing about money matters historically is said or was said to divide the classes.It is important to understand,but terribly boring.The landowners knew the share prices and when and what to buy and the servants knew the price of bread.We have evolved a little and many know how to manage our very modest incomes,but the giants money talk still remains dry and uninteresting.Iam glad that you still lecture on this very boring subject and the MP,s are always envious of your knowledge but they would do well to make the effort and listen and study.I try but find it tiresome.

  5. Bloke
    June 12, 2023

    Those ‘Other Three’ Western banks are supposed to know what to do to achieve the objectives they are supposed to fulfil. They are not supposed to guess, try something they hope might work, then attempt to correct their reckless errors by trying something randomly opposite.

    Those banks need to learn economics before being let loose to cause damage to millions of citizens’ livelihoods. They should follow SJR’s assessments to learn what is right.

  6. a-tracy
    June 12, 2023

    So why didn’t they take your alternative path?
    Why did they choose to allow the BoE to influence it as the blood is ending up on your parties hands and ultimately the taxpayer, through the high cost of living, higher interest rates and higher taxes on the upper level earnings for longer.

    Also why isn’t your government being clear that people earning under £35k are better off tax wise.
    It is the upper tax rates and dividend taxes and IR35 changes that have put up costs. So just the people Labour have said they want to hit more.

  7. Keith from Leeds
    June 13, 2023

    I find it astonishing that the PM & Chancellor don’t ask for your input & advice. It is like two amateurs ignoring a professional because they lack the humility to realise they need help.
    A man, in this case, two men who don’t know what they don’t know!

  8. hefner
    June 13, 2023

    Alternative explanation: since the Thatcher’s years, the emphasis has been more on services than on manufacturing. Both Conservatives and Labour governments let previously public industries first become privatised (not a bad thing per se), but then let the new private companies (whether utilities, communications, transport, …) be bought partly or fully by foreign actors. Then other countries developed their own services and the British services (financial, legal, insurance, …) which were among the best in the ‘90s got more and more competition internationally. With Brexit in 2016 and the subsequent TCA a non-negligible part of the service fraction of business (and a non-negligible part of R&D) left the UK either as bits establishing themselves in continental Europe or the USA, or as even more Foreign Direct Investment into ‘UK’ companies (something seen as positive by people like Sir John et al.)

    Reply More false attribution of views to me and wrong explanation of what has happened.

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