Belfast Telegraph

Against: Bank of England's ill-advised move will come back to haunt it


By Paul MacFlynn

The decision to raise interest rates is ill-advised. In August 2016 the Bank cut interest rates in response to the uncertainty created by the vote to leave the EU. If anything, Brexit uncertainty has increased, so either the Bank was wrong then or it is wrong now.

The Bank has not changed its opinion on the impacts of Brexit and sees it as a significant downside risk. It has not markedly changed its outlook for economic growth in the medium term.

The Bank even accepts that the elevated rate of inflation we are experiencing is almost exclusively attributable to higher import prices from a weaker sterling.

The broad reasons given for the rate rise were erosion of slack in the economy and a growing global economy. Neither is a solid argument. Erosion of slack means record low rates of unemployment are likely to lead to a significant upturn in wages in the near future.

Unemployment has been reaching new record lows for quite some time with no impact on wages.

There is no data to suggest that is about to change. The global economy is on the up, but the idea that this will outweigh the macro-economic impact of Brexit is risible. It appears to me that the only reason the Bank of England raised rates is because it thought everyone was expecting it to. This folly will come back to haunt it.

Paul MacFlynn is an economist at the Nevin Economic Research Institute

Belfast Telegraph

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