“After the jump to 3.2 per cent in August, UK consumer price inflation is on track for at least 4.5 per cent by Christmas – and perhaps as high as 5 per cent.
“Some of the upward pressures on inflation should be temporary, including higher energy costs and ‘base effects’ in the annual comparison. For now at least, medium-term inflation expectations are also still quite low.
“However, these temporary upward pressures have turned out to be both stronger and longer lasting than expected. Why take the risk that higher inflation becomes baked in?
“A sustained increase in inflation will also wipe out any benefit from the pick up in underlying pay growth, which the ONS has estimated at between 3.6 per cent and 5.1 per cent.
“The Bank of England should therefore take the foot off the accelerator by ending quantitative easing, rather than continuing to pump more money into an economy which is already overheating.”
Notes to editors
Contact: Emily Carver, Head of Media, 07715942731
IEA spokespeople are available for interview and further comment.