Monetary Policy

Bank of England keeping interest rates higher for longer than necessary, says IEA economist


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In the Media

Matthew Lesh writes for CityAM

Commenting on the Bank of England Monetary Policy Committee’s decision to hold interest rates 5.25 per cent, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:

“The Bank of England’s decision to keep interest rates on hold, despite the rising risks of a recession, is not completely bonkers. The Monetary Policy Committee’s job is to worry about inflation, not growth, and inflation is still well above its 2 per cent target.

“Nonetheless, there is a clear risk that the Bank will keep rates higher for longer than is either necessary or desirable. Almost every leading indicator of inflation is pointing firmly downwards, including money and credit, producer prices, and global energy costs.

“The MPC’s fears about a ‘wage-price spiral’ are also overdone. In reality, wages are only catching up with prices, and there is already evidence that pay pressures are easing.

“Unfortunately, the Bank currently lacks the confidence or the credibility to cut interest rates until it is certain that inflation is back under control. By then, it may be too late to prevent a prolonged slump. Hopefully the markets will force the Bank’s hand. Indeed, bond yields and mortgage costs are already falling as investors anticipate rate cuts from other central banks, led by the US Fed.”

ENDS

Notes to Editors

Contact: [email protected] / 07763 365520

The IEA’s Shadow Monetary Policy Committee called for the Bank of England to cut interest rates to avoid a recession at their last meeting.

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.



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