The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) has advocated for a significant reduction in the Bank of England’s Bank Rate and a halt to Quantitative Tightening (QT).
Citing concerns about potential deflation and recession, the SMPC majority supported a cut in interest rates by 50 basis points to 4.75%, with one member suggesting a more drastic cut to 4.25%.
The committee argues that in light of a rapid decline in inflation, expected to fall below the Bank’s 2% target sooner than anticipated, urgent action is necessary.
They believe the Bank of England’s current monetary policy may risk severe economic repercussions by failing to address the slowdown in the money supply, which could impede economic growth and lead to deflation.
Dr Andrew Lilico, chair of the SMPC and executive director of Europe Economics, said: “The Bank of England was too slow raising rates when inflation was rising because it missed the clear message from rapid growth in the money supply data.
“It has made a similar mistake in recent months but in the opposite direction: money supply has contracted or grown only far too slowly for many months, yet the Bank has failed to cut rates.
“The consequence so far has been that inflation is well below what the Bank predicted. The consequence in the future will be inflation significantly under-shooting the target and economic growth being damaged. Rates should be cut immediately.”
