IEA Economics Fellow Andrew Lilico has been quoted in The Daily Telegraph responding to news that inflation remained steady at around 2% in June.

Andrew said:

“Despite this being a slight surprise (relative to expectations of a fall), the Bank of England should not use this as an excuse not to cut interest rates.

“As matters stand, long-term interest rates (as defined by UK 10 year government bond yields) sit at just over 4pc whilst the Bank’s short-term policy rate is 5.25pc.

“Thus policy is quite tight relative to the expected long-term norm. What is that tightness seeking to achieve?

“Inflation is at target now. Monetary growth has been very low (indeed was negative for a long period). There is no problem for tightness to cure.

“The Bank seems overly-concerned by wage data. But wage rises are typically caused by inflation rather than being a cause of it.

“Although recent GDP growth has been fairly robust, and there is relatively little evidence of overly-high interest rates creating immediate other economic problems (e.g. mortgage-holder financial distress), the Bank should be cutting rates now rather than waiting.

“Monetary policy works with a lag. If the Bank waits until problems are visible, it will have waited too long.”

Read the full article here.