Thursday, November 21, 2024

The Bank has fluffed its chance to stop a new inflationary storm

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Fiddling the Government’s debt rules is going to stoke up demand, with a big increase in borrowing and spending, at a time when we are close to full employment. In many sectors, soaring sickness claims means the workforce is actually shrinking.

The UK could probably have avoided the tariffs that Trump will soon impose, but childish virtue-signalling from Labour ministers means we probably won’t even ask for an exemption. To cap it all, on Friday, the UN’s World Food Price Index rose sharply, hitting its highest level since April last year.

Add it all up, and one point is surely clear. The global economy is very likely to see an up-tick in inflation. But the UK will be uniquely exposed to that, with our own Government pouring petrol on the flames with policies that could almost have been deliberately designed to force prices higher.

Against that backdrop, it is very clear what a responsible central bank should do. It should keep interest rates on hold, at least until the outlook becomes clearer, or else preemptively raise them to choke off inflation before it becomes embedded in the system.

The trouble is that the Bank, under its hapless Governor Andrew Bailey, has not done that. Instead, on Thursday it cut rates by another quarter point. Sure, it added in a few warnings about how the tax and spending changes will “clearly raise the cost of employment” while admitting it was worried about a “substantial loosening of near-term fiscal policy”.

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