Inflation figures show Bank of England has been too slow to cut rates
14 August 2024
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Commenting on July’s inflation figures which show a 0.2 percentage point increase in the rate of inflation to 2.2%, Andrew Lilico, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:
“Today’s inflation figures support the case that the Bank of England has been too slow in cutting rates. Services inflation, which the Bank has overemphasised in its thinking, is down sharply from 5.7 to 5.2% in the year to April. Concerns about price rises in hotels and restaurants in the year to June proved short-lived, falling back in July. Core CPI was down from 3.5 to 3.3%. A slight rise in headline CPI (from 2.0% to 2.2%) was expected as a result of movements in energy prices.
“Overall, the picture indicates that inflation is likely to undershoot the Bank’s expectations and supports the IEA’s Shadow Monetary Policy Committee’s long-held case that concerns about inflation being persistent based on a wage-price spiral are misplaced.
“Just as the Bank was too slow to raise raises as inflation rose, failing to see the clear signs there were in the monetary data, so as inflation has fallen it has been too slow once again, allowing monetary growth to be too low for too long and failing to grasp its significance. This is unnecessarily impeding growth at a time the economy should be seizing the opportunity for investment in emerging new technologies.
“Failing to take full advantage of this moment could mean a lasting failure to boost UK growth – a boost that is sorely needed.”
ENDS
Notes to Editors
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.
“Today’s inflation figures support the case that the Bank of England has been too slow in cutting rates. Services inflation, which the Bank has overemphasised in its thinking, is down sharply from 5.7 to 5.2% in the year to April. Concerns about price rises in hotels and restaurants in the year to June proved short-lived, falling back in July. Core CPI was down from 3.5 to 3.3%. A slight rise in headline CPI (from 2.0% to 2.2%) was expected as a result of movements in energy prices.
“Overall, the picture indicates that inflation is likely to undershoot the Bank’s expectations and supports the IEA’s Shadow Monetary Policy Committee’s long-held case that concerns about inflation being persistent based on a wage-price spiral are misplaced.
“Just as the Bank was too slow to raise raises as inflation rose, failing to see the clear signs there were in the monetary data, so as inflation has fallen it has been too slow once again, allowing monetary growth to be too low for too long and failing to grasp its significance. This is unnecessarily impeding growth at a time the economy should be seizing the opportunity for investment in emerging new technologies.
“Failing to take full advantage of this moment could mean a lasting failure to boost UK growth – a boost that is sorely needed.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
- At its July meeting, the IEA’s Shadow Monetary Policy Committee, which Andrew chairs, urged the Bank of England to cut interest rates immediately, warning that excessively tight monetary policy could become a drag on economic growth.
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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