BoE decision to raise interest rates will help keep inflation in check, says economist


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Julian Jessop comments for the Mail

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Mark Littlewood writes for The Telegraph

Commenting on the decision to raise interest rates to 0.25 per cent, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:

“The Bank of England’s Monetary Policy Committee (MPC) has decided that continued inaction in the face of soaring inflation would do far more damage in the longer term than a small increase in UK interest rates now. This has been the judgement of the IEA’s Shadow Monetary Policy Committee for some time, too.

“The Bank of England has also ended the expansionary phase of ‘quantitative easing’. The MPC voted to maintain the stock of bond purchases, financed by money printing, at the level which has already been reached. This means that there are currently no plans to do any more QE in 2022.

“The 0.15 percentage point increase in the Bank’s official interest rate, to 0.25 per cent, still leaves borrowing costs at historically low levels. UK interest rates were 0.75 per cent before the pandemic stuck, but economic activity and employment have now largely recovered.

“Most importantly, inflation is now well above the 2 per cent target and has consistently overshot the Bank’s forecasts. The MPC’s main job is to worry about inflation and the moves today should go some way towards restoring the credibility of the monetary policy framework. This will therefore help to keep inflation in check over the longer term.

“The MPC acknowledged the downside risks to economic activity from Omicron, but the majority of members put more weight on the additional upside risks to inflation. This is surely correct as well.

“If the economy does need further support in the short term, this should come from fiscal measures targeted at the sectors most at risk. An extended period of ultra-loose monetary policy might just add to economy-wide price pressures, and require bigger increases in interest rates in future to bring inflation back under control.”

ENDSNotes to editorsContact: Emily Carver, Head of Media, 07715 942 731IEA spokespeople are available for interview and further comment.

 


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