Bank of England on the Back Burner: Economists Urge a Rate Cut
Independent economists—who spend a lot of time trailing the Grand Central Bank of England—are waving a red flag and saying the Bank should drop its rates hard and fast.
What the Judges of Free Market Fancy
The Shadow Monetary Policy Committee, run by the Institute of Economic Affairs (a free‑market think‑tank that likes to pretend it runs the world), argues the UK will either stubbornly hold its ground in slow growth or stumble straight into a recession if the Bank keeps the interest rates stitched up.
Why They’re Not Complacent at 5.25%
They claim the Bank has tamed inflation but hasn’t given the economy the breathing room it needs. Keeping rates high for too long, especially when the money supply is pulling a low‑profile disappearing act, could nudge the country into an unnecessary slowdown or even deflation.
Inflation Is Suddenly Running Amok
Inflation is currently slouching below the Bank’s 2% target—fast enough to fall short soon, according to the committee. They also point out that the Bank’s forecasting and communication has been slapped with criticism after a review headed by ex‑Fed Chair Ben Bernanke. Oops, right?
The Money Supply Mood Swing
Last year, the broad money supply (M4) went negative, meaning credit was shrinking, not blooming. That contraction, coupled with a drop in inflation, has the committee spooked: keeping rates at 5.25% could crush the UK’s growth prospects.
Quantitative Tightening: Pull the Trigger?
To stop this misery train, the committee urges a swift halt to Quantitative Tightening—the process of Walled‑Seattle style bond selling that shrinks the money supply and pushes long‑term rates up. They champion an immediate shift in monetary stance to support the economy and keep inflation from sliding under the target.
Word from the Chair: Andrew Lilico
“The Bank was too slow raising rates when inflation rose because it missed the clear signal from rapid money‑supply growth,” Lilico said. He warns, “the opposite mistake made in recent months—measured by a shrinking or sluggish money supply—means the Bank shouldn’t cut rates. The consequence? Inflation under‑shoots the target, and growth gets bruised.”
Why Now?
With inflation already dancing just below expectations and credit shrinking, the committee’s big question: “Should we cut rates now or risk losing momentum?” They’re all in on the immediate cut.
Bottom line? Economists say a rate drop is overdue, or we’ll be rushing toward a portfolio of bad outcomes: sluggish growth, too-low inflation, and a market that’s feeling it.
