They’ve got it wrong again... rise should’ve been bolder

THE contrast could not be greater. Faced with the prospect of rampant inflation becoming embedded in the US economy, this week America’s central bank slammed on the brakes. With inflation soaring to a 40-year high, the Federal Reserve raised interest rates by three-quarters of a percentage point to up to 1.75 per cent: The biggest hike since 1 4.

Here in Britain, however, the Bank of England has been worryingly timid. Even though peak inflation here is now forecast to reach 11 per cent this autumn, yesterday the Old Lady of Threadneedle Street moved interest rates up by just a quarter of a percentage point – to 1.25 per cent.

Yes, this is the highest rate we have seen since 200 . But, by failing to signal the inflation peril to consumers and busition

‘A badly missed opportunity’

nesses, the governor of the Bank, Andrew Bailey, and his colleagues on the Monetary Policy Committee risk two things: Fixing high inflation in the economy and an outbreak of ‘greedflation’.

This is when suppliers of goods and services – from petrol forecourts to food producers – use inflation as an excuse to raise prices more than they need to.

Bailey and the Bank have repeatedly been wrong on inflation, constantly having to raise projections.

When the furlough scheme ended last autumn, the Bank was so worried about a jump in unemployment, it neglected its main duty: To hold inflation to a 2 per cent annual target.

Any boss of a private sector organisawho missed targets so spectacularly would be out on their ear.

To their credit, three distinguished economists on the rate-setting committee did see the risk of uncontrolled inflation and voted decisively yesterday for a 0.5 per cent rise. But it was not enough.

As the cost of living has surged, Chancellor Rishi Sunak has pumped an extra £37billion into the economy this year to help people meet their energy bills. This should have given the Bank the headroom to raise interest rates without hammering national output.

Now the risk – especially given how restive the trade unions are becoming – is that pay chases inflation. This could create a 1 70s-style ‘wage price spiral’ that would only worsen the problem. Inflation so stitched into the economy could take years to dissipate.

The Bank should have been bolder, sending a powerful message of restraint to households, employees and business. This is a badly missed opportunity – and a serious miscalculation.