Bank of England should not delay rate cut
17 July 2024
SUGGESTED
In the Media
Economics
Housing and Planning
Commenting on news that the rate of inflation remained steady at around 2% in June, Andrew Lilico, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:
“Inflation held steady in June 2024, at 2.8% on the ONS’ preferred CPIH measure and 2% on the Bank of England’s CPI target measure. Despite this being a slight surprise (relative to expectations of a fall), the Bank of England should not use this as an excuse not to cut interest rates.
“As matters stand, long-term interest rates (as defined by UK 10 year government bond yields) sit at just over 4% whilst the Bank’s short-term policy rate is 5.25%. Thus policy is quite tight relative to the expected long-term norm. What is that tightness seeking to achieve? Inflation is at target now. Monetary growth has been very low (indeed was negative for a long period). There is no problem for tightness to cure.
“The Bank seems overly-concerned by wage data. But wage rises are typically caused by inflation rather than being a cause of it.
“Although recent GDP growth has been fairly robust, and there is relatively little evidence of overly-high interest rates creating immediate other economic problems (e.g. mortgage-holder financial distress), the Bank should be cutting rates now rather than waiting. Monetary policy works with a lag. If the Bank waits until problems are visible, it will have waited too long.”
ENDS
Notes to Editors
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.
“Inflation held steady in June 2024, at 2.8% on the ONS’ preferred CPIH measure and 2% on the Bank of England’s CPI target measure. Despite this being a slight surprise (relative to expectations of a fall), the Bank of England should not use this as an excuse not to cut interest rates.
“As matters stand, long-term interest rates (as defined by UK 10 year government bond yields) sit at just over 4% whilst the Bank’s short-term policy rate is 5.25%. Thus policy is quite tight relative to the expected long-term norm. What is that tightness seeking to achieve? Inflation is at target now. Monetary growth has been very low (indeed was negative for a long period). There is no problem for tightness to cure.
“The Bank seems overly-concerned by wage data. But wage rises are typically caused by inflation rather than being a cause of it.
“Although recent GDP growth has been fairly robust, and there is relatively little evidence of overly-high interest rates creating immediate other economic problems (e.g. mortgage-holder financial distress), the Bank should be cutting rates now rather than waiting. Monetary policy works with a lag. If the Bank waits until problems are visible, it will have waited too long.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
- At its last meeting in May, the IEA’s Shadow Monetary Policy Committee urged the Bank of England to cut interest rates by at least 0.5%.
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.
SHARE
