IMF takes swipe at Bank of England over rate inertia amid soaring inflation
The International Monetary Fund (IMF) today fired a warning shot at the Bank of England, urging the central bank to hike interest rates now to tame runaway inflation.
The world’s economic watchdog told the Bank it needs to “withdraw the exceptional support provided during” the Covid-19 crisis or risk facing spiralling inflation.
In a stark warning, the rate of price rises will not revert back to the Bank’s two per cent target until 2024, the organisation said.
In its annual check up on the UK economy, the IMF predicted inflation will hit a three-decade high of 5.5 per cent next spring.
Threadneedle Street should avoid “inaction bias” or risk spiking the UK economy with negative inflationary shocks by sitting on its hands and leaving rates at a record low 0.1 per cent.
Official inflation estimates are announced tomorrow and are expected to intensify pressure on the Old Lady to act to hose down red hot inflation.
City economists expect the rate to climb to around five per cent, scaling further above the Bank’s two per cent. The Office for National Statistics estimates inflation is already running at 4.2 per cent.
The Bank’s rate setting committee will announce its next move on interest rates and quantitative easing on Thursday.
City experts have reined in bets on the Bank hiking rates for the first time in three years due to the emergence of the Omicron variant of coronavirus potentially derailing the UK’s economic recovery.
A strong jobs print released by the ONS this morning would have likely been enough to coax the Bank into lifting rates had the new strain not emerged.
“Today’s labour market report probably would have been strong enough to convince the MPC to raise Bank Rate at this week’s meeting, if Omicron had not emerged,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said.
If blanket lockdown measures have to be reimposed to quash Omicron, the government “should be ready to redeploy a subset of the most successful previous exceptional programmes” including the furlough scheme, the IMF said.