Interest rates will have to rise but real focus must be on jobs and growth

The return of inflation must lead to action on our dismal productivity record rather than just a sterile debate over interest rate rises, writes Phil Thornton

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Inflation is back. The recent rise in the UK’s headline rate above the Bank of England’s 2.0 per cent target for the first time in two years came just a few days after the cost of living in the United States hit a 13-year high.

Money market traders have for some time been raising the interest rates that banks and lenders pay – and which get passed on to us via mortgages and car loans – while City analysts have started debating whether the Monetary Policy Committee (MPC) should raise its borrowing rate as early as next year.

Two outcomes are all but certain when the Bank of England’s MPC meets this week. It will decide to leave policy unchanged with just one member – outgoing chief economist and innovative thinker Andrew Haldane – voting to tighten the taps by pulling the plug on its £875bn quantitative easing programme.