No cause for alarm

The fact that inflation has risen above the Bank of England’s 2 per cent target is no cause for panic, or even alarm. The lower levels of inflation that have been recorded in recent years are neither normal nor necessarily a sign of economic health; remember that not so long ago, serious economists were fretting about deflation, where prices fall and growth falters.

By contrast, the latest inflation figures come amid growing signs that the global economy is ticking over quite nicely, not least thanks to investors’ confidence in the American economic powerhouse under Donald Trump’s tax-cutting presidency. Of course, naysayers such as the BBC would rather see the inflation figures as wholly negative and wholly caused by Brexit.

In fact, the relationship between prices and our coming EU exit is much more complex. It is true that some imported goods have been made more expensive by the falling value of the pound, but many economists argue sterling was overvalued. The shift in exchange rates also delivers economic benefits (cheaper British exports, more tourism) that are not reflected in the inflation data.

What should the Bank do now that inflation is back above its target level? Nothing hasty. In time, interest rates must return to historically normal levels, not least to deliver a fair return to responsible savers.

The Quantitative Easing programme must also be unwound: the age of cheap money must one day be brought to an end. But there must be no undue hurry. With a complex Brexit negotiation not even begun and economic growth depending partly on the confidence of consumers, the Bank should not rush to judgment.