Bank of England needs to change tack on interest rates

Bank of England needs to change tack on interest rates

Commenting on data showing that the rate of inflation fell to a lower-than-expected 3.9 per cent in November, Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:

“The sharp fall in inflation in November makes the Bank of England’s position on interest rates look even shakier. Almost every leading indicator has been pointing firmly downwards for some time, notably the monetary aggregates, but some on the Monetary Policy Committee still want to raise rates further.

“In reality, inflation is well on track to hit the MPC’s two per cent target in the first half of 2024, which would be at least a year earlier than the Bank has been forecasting. Deflation is now the bigger risk and interest rates are too high.

“Unfortunately, the Monetary Policy Committee has continued focus on hypothetical ‘second-round effects’ and ‘wage-price spirals’. But with pay pressures now easing too, the MPC will soon run out of reasons not to cut rates. The longer the Bank waits, the greater the risks that the economy is tipped into a recession that is wholly unnecessary to bring inflation down.”