IEA - Bank of England must avoid oversteering on interest rates, warns economist

From: Think Tanks
Published: Fri Feb 03 2023

Dr Andrew Lilico, Chairman of the Shadow Monetary Policy Committee and Fellow at the Institute of Economic Affairs Commented on the Bank of England's decision to increase interest rates to 4 per cent

The Bank of England's decision yesterday to raise rates to 4 per cent was not unexpected. We should now be at or close to the peak of interest rates for the time being, otherwise the Bank risks monetary overkill.

Annual broad money growth, which at over 15 per cent in early 2021 was a key driver of underlying inflation in 2022 (with energy price rises elevating what would anyway have been a significant target miss), had fallen below 3 per cent by the end of 2022. That should bring underlying inflation down rapidly, in addition to the reversal of energy price rises, without the need for much further tightening.

The Bank was too slow to raise rates initially, but it must beware of oversteering now in response to its initial error.

IEA spokespeople are available for live and pre-recorded broadcast

Notes to Editors

In its January 2023 meeting, the Shadow Monetary Policy recommended holding interest rates at 3.5 per cent, arguing that another increase may risk monetary overkill:

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.

Company: Think Tanks

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