IEA Shadow Monetary Policy Committee Chair Trevor Williams has written in The Daily Telegraph criticising the Bank of England’s decision to increase rates to 4.5 per cent.

Trevor wrote:

“The danger now is that the Bank will find itself overcompensating. Growth in prices is already outstripping growth in incomes by around 4 per cent per year. 

“Money supply growth is slowing fast and suggests that we could face deflation in just two years time. The Bank of England’s own forecasts show inflation well below its 2pc target by the end of the same time frame. 

“Focusing today on the current backward-looking inflation rate risks missing the fact that rate rises take 2 years to have their full effect.

“So why is the Bank of England raising rates despite the UK on course to be the worst-performing of the G7 economies? 

“It seems to be a desire to get back its credibility. But that will unravel if, as seems likely, it will have to cut rates sharply next year to compensate for over-tightening this year, and inflation drops well below target without significant economic recovery.”

Read the full piece here.