Analysis

Why the Bank of England must not bow to pressure to tighten monetary policy

This week’s meeting of the monetary policy committee should be one of the most significant since the Bank of England decision-making body was given the power to set interest rates 24 years ago. Phil Thornton explains why it would be a mistake to start tightening monetary policy now

Wednesday 04 August 2021 00:19
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<p>The Bank has warned inflation could rise to 4 per cent by the end of 2021</p>

The Bank has warned inflation could rise to 4 per cent by the end of 2021

After keeping interest rates unchanged for 17 months and maintaining its quantitative easing (QE) programme since November 2020, all eyes are back on the Bank of England this week thanks to a confluence of events.

Inflation has risen to 2.5 per cent, above its target of 2.0 per cent. Blockages and delays in the supply chain due, in part, to both the Covid-19 “pingdemic”, that has confined key workers to their homes, and the long-term impacts of Brexit are likely to push prices up further: the Bank’s recently-departed chief economist Andy Haldane thinks inflation could soar to 4 per cent by the end of the year.

New coronavirus case numbers have begun to fall while deaths and hospitalisations have remained low. The International Monetary Fund (IMF) has forecast that the economy will post the joint-fastest growth in the G7 in 2021 at 7 per cent.

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