The Daily Telegraph

Bank of England has pushed Britain into recession, warns NIESR

- By Tim Wallace, Eir Nolsøe and Szu Ping Chan

THE Bank of England has pushed the UK into recession by refusing to clearly communicat­e its plans to cut interest rates, top economists have warned.

Britain fell into a recession at the end of 2023, according to estimates by the National Institute of Economic and Social Research (NIESR), as GDP fell by 0.1pc in part because of the Bank’s insistence that high interest rates would not fall soon from their current 16-year high of 5.25pc.

Ben Caswell, an economist at NIESR, suggested “a little bit of forward guidance may have helped tip [the UK] out of a technical recession”. He added: “In comparison with the Federal Reserve or the ECB, the Bank of England has been a bit less communicat­ive regarding when rate cuts are likely to take place.

“The Bank takes this stance where they say, ‘When is a rate cut going to happen? We follow the evidence and will make a decision when the time is right’. Whereas if you look at the Fed, they say, ‘We think rate cuts are likely during a given period.’”

Preparing financial markets in the Fed’s manner helps lower borrowing costs for households and businesses even before interest rates are formally cut, which “can minimise the economic pain”, said Mr Caswell. NIESR said it expected inflation to drop below the Bank’s 2pc target in the second quarter of this year when the energy price cap falls again.

This will prompt the Bank to start a series of rate cuts in May, the think tank said, taking its base rate to 3.25pc by early 2026. It comes as job vacancies have fallen below pre-pandemic levels for the first time, bolstering hopes the Bank can cut interest rates soon.

The downturn spells an end to the post-pandemic hiring boom that resulted in employers facing stiff competitio­n over workers.

The tight labour market and surging pay growth have been key concerns for policymake­rs battling inflation. Swati Dhingra, the only member so far of the nine-strong Monetary Policy Committee to have voted for a rate cut, told the Financial Times that “you might see the real economy start to get negatively hit in a more profound way — and I don’t see why we should be risking that”.

Separately, a report by the Treasury select committee warned that the Bank should not rush to print money during the next financial crisis.

MPS said rules surroundin­g so-called quantitati­ve easing did not do enough to shield taxpayers from unnecessar­y losses, describing the unwinding of its colossal bond-buying programme as a “leap in the dark”. While the committee insisted the Bank’s operationa­l independen­ce remained paramount, it called for more transparen­cy over bond sales as the Bank estimated taxpayers faced an £80bn hit based on current interest rate prediction­s.

“It strikes us as highly anomalous that decisions are being taken concerning huge sums of public money without any regard to the usual value-for-money requiremen­ts,” MPS warned in a report.

“Given what we now know, any future quantitati­ve easing should not proceed automatica­lly under the existing arrangemen­ts. Instead, the arrangemen­ts should be revisited in light of the implicatio­ns for value-for-money, public spending and Bank independen­ce.”

Harriett Baldwin, chairman of the committee, said: “I recognise the Bank does not have a crystal ball but more can be done to develop modelling tools which can help us understand the risks and benefits of quantitati­ve tightening.”

A Bank of England spokesman said: “We continue to encourage active debate about our monetary policy decisions and their implementa­tion.”

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