The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) has warned of a potential recession due to excessively high interest rates and has called for an immediate cut.
They have voted in favor of reducing the Bank Rate by 0.25% to 5.00%, expressing concerns that the UK might considerably fall short of the official 2% inflation target in the coming years, risking economic slowdown due to deflation.
A majority of the SMPC also voted to halt or scale back Quantitative Tightening – the selling of bonds bought during QE – which is pushing down their price thus raising long-term interest rates (as the yields move inversely to the price), contract the money supply and slow the economy.
Patrick Minford of the Cardiff Business School went further by urging the return of Quantitative Easing, the expansionary monetary policy of bond purchases.
Trevor Williams, chair of the SMPC and former chief economist at Lloyds Bank, said: “There is mounting evidence that the UK’s monetary policy is too tight and could lead to price deflation in a few years and potential recession in the interim.
“The Bank of England should act now by lowering interest rates.”
Williams also noted the necessity for the Bank to focus on future inflation projections, urging it to act proactively to prevent economic contraction.
