The Institute of Economic Affairs (IEA) has advised the Bank of England to hasten interest rate reductions.
- Following September’s inflation dip to 1.7%, the IEA suggests current UK rates surpass necessity.
- Julian Jessop highlights a cooling job market, lessening concerns over service inflation.
- Transport cost fluctuations affected September’s figures; domestic energy may cause a short-term spike.
- A substantial tax increase in October’s Budget may justify a significant rate cut.
The Institute of Economic Affairs (IEA) has strongly recommended that the Bank of England expedite its interest rate cuts. This comes on the back of a notable decline in inflation to 1.7% for the month of September, marking the first instance in over three years that inflation has dropped below the 2% target. Julian Jessop, an economist at the IEA, has been vocal about the implications of this data, suggesting that the prevailing UK interest rates are excessively high for current economic conditions.
Jessop points out that the softening of the labour market is likely to alleviate concerns regarding inflation in the services sector. This observation comes as the September inflation figures, although favourable, were influenced significantly by variable transport costs. Jessop warns that inflation might temporarily exceed the 2% mark again, particularly with the expected rise in domestic energy costs in October.
Despite these potential fluctuations, Jessop remains optimistic, asserting that inflation trends will stay below what the Bank of England has projected. He advocates for a quarter-point reduction in interest rates at the upcoming Monetary Policy Committee (MPC) meeting in November. This recommendation is underscored by the possible impact of elevated tax rises anticipated in the October Budget, which could tilt the scales towards a more substantial half-point rate cut.
Accelerated rate cuts could balance inflation forecasts and economic stability.
