Glad to see interest rates on hold, but monetary policy may already be excessively tight and rates may need to come down soon
- Glad to see Bank of England decision not to raise rates, but it is worrying that three MPC members wanted to keep tightening.
It is a relief that the majority of members decided not to increase interest rates this month, but is still of concern to see three members wanting them to go up by another 0.25 % points.
It is hard to understand why rates would need to increase yet again, in the face of major global tensions, leading indicators suggesting a slowing economy and the already significant tightening likely to still feed through for many months to come.
The Bank of England was too slow to recognise the need to be ahead of the curve in raising rates as inflation was surging, and I do hope they will not be too slow to recognise the dangers of a highly indebted economy being saddled with overly tight monetary policy for too long.
As gilt yields have also risen above levels of last October and the Bank of England is committed to selling £100bn of gilts in the coming year, monetary conditions are tightening without any further bank rate increase. Even if short rates come down slightly, the bias of policy will remain on the side of tightening and, as real yields return to positive territory, the need to keep pushing base rate higher is significantly reduced now.
I do hope that the Bank of England will start considering how soon to cut rates and be vigilant for impending signs of excessively tight policy, as economic indicators are released in coming weeks.