Financial turmoil no reason to delay rate rise
23 March 2023
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Commenting on the Bank of England’s decision to raise Bank Rate by 25 basis-points to 4.25 per cent, IEA Economics Fellow Julian Jessop said:
“The Bank of England’s decision to raise UK interest rates by a quarter point was boringly predictable.
“The Monetary Policy Committee was right to ignore calls to cut rates in response to turmoil in the financial sector. The MPC’s job is to worry about inflation, not the banks; the vast majority of which are in good shape anyway.
“With inflation so far above its 2 per cent target, it was easy to justify another small rate increase, though the MPC has at least switched from half-point to quarter-point hikes.
“Whether interest rates are raised again will depend mainly on the labour market and price data between now and the next meeting, and on the extra analysis in the May Monetary Policy Report. This is how it should be.
“Nonetheless, there was already a strong case for a pause this week to assess the full impact of the tightening of monetary and financial conditions that have already taken place.
“It would certainly be worrying if the MPC has been spooked by just one month’s data on consumer price inflation, given all the other evidence that pipeline price pressures are fading. Monetary policy is supposed to be far more forward-looking than this.”
ENDS
IEA spokespeople are available for live and pre-recorded broadcast
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.
“The Bank of England’s decision to raise UK interest rates by a quarter point was boringly predictable.
“The Monetary Policy Committee was right to ignore calls to cut rates in response to turmoil in the financial sector. The MPC’s job is to worry about inflation, not the banks; the vast majority of which are in good shape anyway.
“With inflation so far above its 2 per cent target, it was easy to justify another small rate increase, though the MPC has at least switched from half-point to quarter-point hikes.
“Whether interest rates are raised again will depend mainly on the labour market and price data between now and the next meeting, and on the extra analysis in the May Monetary Policy Report. This is how it should be.
“Nonetheless, there was already a strong case for a pause this week to assess the full impact of the tightening of monetary and financial conditions that have already taken place.
“It would certainly be worrying if the MPC has been spooked by just one month’s data on consumer price inflation, given all the other evidence that pipeline price pressures are fading. Monetary policy is supposed to be far more forward-looking than this.”
ENDS
IEA spokespeople are available for live and pre-recorded broadcast
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.
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