The Bank of England’s Monetary Policy Committee (MPC) was wrong to maintain the base rate at 5.25%, according to the Institute of Economic Affairs.
Earlier today the Bank of England voted by a majority of 7-2 to maintain the base rate at its current level, a level that has been unchanged since August 2023.
The rate remains the same despite encouraging news that inflation reached the bank’s target of 2% this week, and that unemployment hit 4.4%, which led some commentators to predict the first drop since before the pandemic.
Julian Jessop, economics fellow at the free market think tank the Institute of Economic Affairs, said: “The Bank’s decision to leave interest rates on hold despite inflation falling to target is not unreasonable, but it is still wrong.
“There is already plenty of evidence that underlying cost pressures are easing. The longer the Bank waits, the greater the risk that inflation undershoots the target while unnecessarily holding back the recovery.
“Most Monetary Policy Committee (MPC) members are not yet confident that pay pressures and services inflation have slowed sufficiently to sound the ‘all clear’. There is a risk that inflation could rise again in the second half of the year.
“It would be unfair to accuse the Bank of political bias. But the view of the markets may have influenced the decision. The MPC could have wanted to avoid the perception of bias if they had surprised investors by cutting rates so close to an election.
“An August rate cut is still very much in play. The statement noted that a new set of forecasts will allow a more detailed assessment of the risks of inflation persisting. Even some MPC members who voted for no change this week acknowledged that their decision was finely balanced.”
