“The jump in inflation to 2.5 per cent in June is yet another warning to the Bank of England that policy is now too loose. The Monetary Policy Committee has already conceded that inflation is likely to exceed 3 per cent later this year, but is banking on this being temporary. This looks increasingly complacent.
“Some of the upward pressures on inflation will be transitory, but even these are proving larger and longer-lasting than expected. There is also a danger of focusing too much on individual price changes and not enough on the big picture.
“The recovery is now running into supply constraints. Pumping even more money into the economy will therefore inevitably lead to higher inflation – a classic case of too much money chasing too few goods and services.
“At the very least, the Bank of England should now scale back its planned asset purchases under the policy of ‘Quantitative Easing’. This would simply be taking the foot off the accelerator and is unlikely to derail the recovery. Instead, it should contribute to more sustainable growth by keeping inflation and inflation expectations down”.
Notes to editors
Contact: Emily Carver, Head of Media, 07715942731
IEA spokespeople are available for interview or further comment.