Bank must ‘move faster’ with rate rises to tackle inflation
INFLATION was allowed to soar because the Bank of England failed to act quickly enough to raise interest rates, says a former deputy governor.
Sir Charlie Bean has warned the central bank must “move faster” with future increases in order to bring it under control.
The ex-deputy boss for monetary policy at the BoE throughout the financial crisis, and a recently retired member of the fiscal watchdog, criticised the decision to hold off from hiking rates until December.
Sir Charlie said the Bank “erred too much towards looseness through the past few months”.
He added: “If I was on the MPC (Monetary Policy Committee), I would have been in favour of moving earlier than they have.”
Sir Charlie said policymakers should have acted in November or earlier as the economy had started to show signs of overheating.
The MPC raised the cost of borrowing from 0.1 per cent to 0.25 per cent last month, the first rise for more than three years, as it warned inflation was set to reach six per cent in the spring.
It came after the Bank caught financial markets off guard by keeping rates unchanged in November despite laying the foundation for a rise.
Sir Charlie said a strong economic bounceback and resilient jobs market, despite the end of the furlough scheme, would have supported a rate rise much earlier.
He said it was not a “significant policy error” by the BoE, but it puts pressure on further rises after inflation hit its highest level for nearly 30 years.
Official figures last week showed it jumped to 5.4 per cent in December, far higher than expected.
Experts predict another hike to 0.5 per cent at the Bank’s next meeting early next month, which would be the first back-toback increase since June 2004. At least another rise is also expected by the end of the year.
Sir Charlie, who retired from the Office for Budget Responsibility (OBR) at the end of last year, pointed out that the Bank was powerless to influence energy prices.
He urged Government to step in to help ease the crushing cost-of-living squeeze.
And Sir Charlie, also a professor at the London School of Economics, warned the Bank’s action would not be able to prevent a significant financial hit to household finances.
National Insurance goes up in April along with many energy bills. He predicted: “It’s certainly going to come as a shock to consumers as we go through the first part of this year.”