Latest interest rate hike unnecessary

Monetary Policy

Latest interest rate hike unnecessary

15 May 2023

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IEA Director of Public Policy and Communications Matthew Lesh has written in The Daily Express criticising the Bank of England’s decision to raise interest rates to 4.25 per cent.

Matthew wrote:

“Central banks across the world, including the Bank of England, were initially slow to recognise the uptick in inflation in 2021.

“The key driver of inflation was the central banks, who supported Government spending by pumping trillions into the global economy during the pandemic, along with Covid discombobulating supply chains.

“However, it’s unclear whether more action is needed. The Institute of Economic Affairs’ Shadow Monetary Policy Committee has concluded that no further rate rises are necessary to slow down inflation.

“They point out that the Bank is over-focused on current inflation, rather than the sharp reduction in the money supply that is expected to bring down inflation over the coming two years.

“This is supported by the Bank’s official forecasts, which suggest inflation could fall as low as one percent.

“It’s also notable that the UK economy has slowed and Covid and Ukraine-related supply chain pressures have eased.”

Read Matthew’s full piece here.