The Bank of England’s policymakers decided it was time to act on inflation today by hiking the benchmark Bank Rate to 0.25%. The monetary policy committee voted 8-1 to raise the base rate from its record low of 0.1%, and to keep its quantitative easing asset purchases on hold.
Adrian Lowery at investing platform Bestinvest says that faced with the prospect of stagflation, the Bank of England has now reprioritised inflation.
‘It is surprising that it was a nearly unanimous decision among MPC members to raise rates, given their recent “relaxed” approach to inflation, and overriding concern for the real economy. But it is their mandate to keep inflation as close to 2% as is reasonably possible, and with the headline rate running at a 10-year high of 5.1%, some would argue the move is overdue.
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Subscribe‘Asset price increases and cheap loans on the back of ultra-loose monetary policy have made better-off households feel wealthier despite the flash economic slump of last year. So it is questionable what effect a tiny rate increase will now have on prices, particularly as some of the causes of inflation are supply rather than demand side.
‘Likewise it should not have a significant negative effect on growth, although one feels for hospitality, leisure and travel businesses in the current environmentSo it is questionable what effect a tiny rate increase will now have on prices, particularly as some of the causes of inflation are supply rather than demand side.
| ‘Any major or precipitate reversal of ultra-loose money, in response to an inflation panic, could cause ructions in both the markets and the real economy. So it’s to be hoped that this is the start of a gradual and predictable tightening of monetary policy, not just here but globally too.’
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