Monetary Policy

Bank of England Running Out of Reasons Not to Cut Rates


Commenting on news that the inflation rate fell to a two-and-a-half year low of 3.4% in February, Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:

“The latest drop in inflation demonstrates the urgent need for the Bank of England to begin cutting rates. The renewed slowdown in the headline rate – to 3.4% in February – paves the way for annual inflation to fall below the 2% target in April when the new Ofgem cap on energy bills kicks in.

“Indeed, the consumer price index has been little changed since September, meaning that shorter-term measures of inflation are now close to zero. This is consistent with the sharp slowdown in the growth of money and credit.

“Some underlying measures are still high, notably annual services inflation which is running at 6.1%. But with plenty of evidence that the labour market is cooling, and inflation expectations are dropping, fears of a ‘wage-price spiral’ should fade too.

“By far the bigger risk is that having been too slow to act when inflation was taking off, the Bank of England will now be even slower to respond on the way down.”

ENDS

Notes to Editors

Contact: [email protected] / 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.



SIGN UP FOR IEA EMAILS