Interest Rates are Suffering!

It has not been a great six months for the Bank of England. In that time it has suffered from confusing communication, a divided monetary policy committee and consumer price inflation rising to 3.1 per cent year-on-year – far enough above the 2 per cent target to merit a letter of explanation to the government.

Thursday’s decision to raise rates by 25 basis points to 5.5 per cent at least means the Bank is back to doing what informed people expect of it: all 61 economists polled by Reuters predicted the move. And the statement was commendably clear, noting that there is little spare capacity and that inflation risks were “tilted to the upside”. The Bank rejected the macho option of a 50bp rise to lay down the law in a booming UK economy. But it is difficult to believe that rates will not have to rise again.