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2:28 PM 5th May 2022
business
Opinion

BOE Decision Will Do Little To Control Rising Inflation, Warns IEA Economist

Commenting on the Bank of England's decision to raise interest rates from 0.75% to 1% Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:

"The Bank of England has done the bare minimum today – and it is not enough.

"Macroeconomic policy is now in an even bigger mess. Fiscal policy is too tight and monetary policy is too loose, increasing the risks of stagflation.

"Despite new forecasts that UK inflation will rise to above 10 % later this year, the Monetary Policy Committee (MPC) has raised interest rates by just a quarter of a point, to 1%.

"What’s more, the MPC has failed to begin the process of reversing the money printing that has allowed inflation to take off.

"Instead, the MPC has simply asked Bank staff to work up a plan for gilt sales (do they not have one already?), and report back in August. Active ‘quantitative tightening’ may not start until the autumn.

"There is little that the MPC can do to control inflation in the short term, but a bolder move today could have helped to reduce the risk that inflation remains higher for longer.

"Fears that higher interest rates could tip the economy into a deeper recession are exaggerated. Even at 1%, UK interest rates remain near emergency lows. Real interest rates (after allowing for inflation) are even lower.

"It is also important to take a longer view. The Bank should have done much more now to keep inflation expectations down and to reduce the need for bigger interest rate hikes in future."