BoE needs to act now to bring inflation back under control, warns economist


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Annabel Denham writes for The Spectator

Commenting on the inflation figures published today by the ONS, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:

“The jump in CPI inflation to 5.1 per cent in November already takes it well above the 4.5 per cent figure that the Bank of England predicted as recently as last month. The best hope is that inflation settles around these levels, then drops sharply from mid-2022. But the Monetary Policy Committee’s (MPC) credibility is on the line if they fail to act now to keep inflation expectations in check.

“The biggest contributor to the surge in inflation in the UK, as elsewhere, is still the jump in global energy prices, which are now levelling out. But the CPI excluding food and energy still rose by 4 per cent, twice the MPC’s target of 2 per cent for the headline rate.

“What’s more, the huge amount of monetary stimulus from quantitative easing (QE) means that even if energy prices drop back, inflation may simply pop up elsewhere. There are already signs that cost and price pressures are spreading.

“Since the MPC’s last meeting, inflation has been faster than expected and the labour market has continued to tighten, despite the end of the furlough scheme.

“The new uncertainty created by Omicron is not necessarily a good reason to leave interest rates on hold. Omicron seems more likely to add to inflation pressures, by further disrupting supply chains, than to reduce them by dampening demand.

“At the bare minimum, the MPC should confirm tomorrow that QE will end this year with the completion of the current programme of asset purchases. Even it does not also nudge rates higher this week, it should signal that any further delay is likely to be very brief.”

ENDS

Notes to editors

Contact: Emily Carver, Head of Media, 07715 942 731

IEA spokespeople are available for interview and further comment.

Further IEA reading:Inflation: The next threat? by Dr Juan Castañeda And Professor Tim Congdon


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