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IEA - Bank of England wrong to not cut rates

Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, commented on the Bank of England’s decision to hold the Bank Rate at 5.25%


“The Bank’s decision to leave interest rates on hold despite inflation falling to target is not unreasonable, but it is still wrong. There is already plenty of evidence that underlying cost pressures are easing. The longer the Bank waits, the greater the risk that inflation undershoots the target while unnecessarily holding back the recovery.

“Most Monetary Policy Committee (MPC) members are not yet confident that pay pressures and services inflation have slowed sufficiently to sound the ‘all clear’. There is a risk that inflation could rise again in the second half of the year.

“It would be unfair to accuse the Bank of political bias. But the view of the markets may have influenced the decision. The MPC could have wanted to avoid the perception of bias if they had surprised investors by cutting rates so close to an election.

“An August rate cut is still very much in play. The statement noted that a new set of forecasts will allow a more detailed assessment of the risks of inflation persisting. Even some MPC members who voted for no change this week acknowledged that their decision was finely balanced.”

 

Notes to Editors

  • New research written by Prof Congdon and published by the Institute of Economic Affairs explains that the Bank of England’s botched response to inflation was caused by its failure to pay attention to the growth of the money supply: The Quantity Theory of Money: A New Restatement
  • The latest meeting of the IEA’s Shadow Monetary Policy Committee urged the Bank of England to cut interest rates by at least 0.5%. The group group of independent economists who shadow the Bank have raised concerns that a slowdown in the money supply could cause deflation and recession unless the MPC changes course.
  • SMPC member and IEA Economics Fellow Julian Jessop explained the link between inflation and the growth of Broad Money in a September 2023 article for The Spectator. Read the piece here: Is printing too much money the real cause of inflation?

Contact: media@iea.org.uk / 07763 365520

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.

Original article link: https://iea.org.uk/media/bank-of-england-wrong-to-not-cut-rates/

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