Bank of England may have moved 'too fast' says Stirling
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Economist Alfie Stirling has reported on new evidence which suggests the Bank of England may have moved “too fast” and “too far” when increasing the UK interest rate. Earlier this month, the Bank of England raised the rate of interest from 2.25 percent to 3 percent. The increase marked the largest rise in over three decades as the Bank has grappled to control the rate of inflation, which has spiralled over the last year. The news comes as the Chancellor Jeremy Hunt has unveiled the Conservative Government’s plot to get the nation’s economy back on track.
Mr Stirling, who is director of research and chief economist at the New Economics Foundation reported: “I think actually it does look like inflation is coming down.
“I think there is a really important point here which is that there is a lot of evidence at the moment which suggests the Bank of England may have gone too far in terms of the rate rises that we’ve seen.
“The prevailing market conditions and the Bank of England forecast suggest inflation going below the target of two percent in a couple of years’ time.
“The OBR thinks inflation could go negative within the forecast period – well below target.”
The Bank of England has a target of two percent for the annual rate of inflation. Data from the Office of National Statistics has indicated the inflation rate is currently around 11.1 percent, far higher than the target needed to ensure economic stability.
With rising inflation, the cost of everyday goods and services has also risen, placing a fierce strain on disposable income as wages have comparatively stagnated.
Mr Stirling added: “These are not healthy conditions. This is because, as we have heard, the depth of the recession, in part, contributed to rising interest rates.
“I think there is a case now to say: ‘Woah guys have we gone too far, have we gone too fast? Do we need to look at the recessionary impacts as well and not just keep an eye on inflation?’”
Read more: House prices set to fall by 9%, OBR warns
By contrast, Professor Ian McCafferty, a former member of the Monetary Policy Committee, defended the Bank of England’s progression of the interest rate.
He told LBC: “I wouldn’t say that I think the Bank has gone too far.
“I also believe that market expectations are probably still at the high end of where the Bank will eventually end up.
“I do think that there is probably still a small amount of monetary tightening still to go over the course of the coming months.
“The markets are now expecting rates to peak out at about four and a half percent, that’s down from the six and a half percent immediately after the Kwarteng budget.”
Pound tumbles against dollar after Hunt’s budget sparks market fears [REVEAL]
Parliament erupts as Hunt slaps down Labour [VIDEO]
The millions Hunt forgot about in this budget, Britain’s self-employed [INSIGHT]
Professor McCafferty suggested mortgage rates had already begun to climb down from the spike triggered by the disastrous budget of former chancellor Kwasi Kwarteng.
Kwarteng’s successor Jeremy Hunt unveiled the Government’s autumn budget on Thursday, which will aim to halt soaring inflation and steady the UK economy.
The Chancellor declared the UK was already in recession as he announced a freeze on income tax thresholds, meaning millions of people will pay more in tax as their wages increase over time.
In addition, he confirmed the state pension, benefits and tax credits will all rise in line with the rate of inflation and the national living wage for over-23s will be increased to £10.42 an hour.
Mr Hunt described the strategy as a “balanced package” and indicated the Government had been “careful” to ensure the recession would be “shallower” than has been feared.
Hunt vows to grip economic ‘storm’ with major tax hikes in hours
All you need to know about Hunt’s Budget statement today
Jeremy Hunt’s budget to ‘hurt’ with ‘stealth taxes’
Jacob Rees-Mogg blasts Bank of England’s ‘credibility’
Blackford blast torn apart after Scotland given dire economic forecast
Source: Read Full Article