Bank of England urged to raise rates to five per cent

Summarised from 2 outlets · Updated 11 Nov, 00:27 · Archive

The National Institute of Economic and Social Research warns the Bank of England should raise interest rates to five per cent to prevent inflation becoming embedded.

The National Institute of Economic and Social Research (Niesr) has criticised the Bank of England's response to rising inflation, warning that last week's rate increase to four per cent is too cautious. The think tank said in its autumn report that the Bank should raise rates to five per cent to prevent inflation becoming a persistent feature of the UK economy.

Niesr forecasts that inflation will stay above the Bank's two per cent target until at least 2030 unless stronger action is taken. The think tank warned that about three quarters of UK workers are expected to agree pay settlements with employers in the first three months of 2027, just as inflation is forecast to peak above four per cent. This timing risks triggering what Niesr calls 'second round effects', where higher inflation gives rise to wage bargaining in a spiralling price effect across the economy.

The Bank's monetary policy committee raised rates from 3.75 per cent to four per cent last week amid inflationary pressure driven by rising fuel costs following the war between the US and Israel on Iran. Niesr's director, David Aikman, said one further quarter-point rise would be unlikely to be enough, and warned that the longer the Bank waits, the more it will eventually need to do.

How it is being reported

• Bank of England’s inflation response ‘risks higher interest rates for longer’Thinktank Niesr says timid rate rise last week likely to make inflation more persistent feature of UK economy The Bank of England is risking higher interest rates for longer after a hesitant response to rising inflation , according to leading thinktank. In a searing critique of the central bank’s tactics, the National Institute of Economic and Social Research (Niesr) said a timid increase in interest rates last week was likely to mean inflation staying above the Bank’s 2% target until at least 2030. Continue reading...The Guardian · 11 Nov, 00:01
• Bank of England urged to hike interest rates from four to five per centThe Bank of England has been urged to hike interest rates to five per cent after new analysis suggested inflation may not return to the two per cent target until 2030. The National Institute of Economic and Social Research (Niesr) said in its autumn report that the Bank should dramatically hike interest rates following a [...]City AM · 11 Nov, 00:01

In this story: Bank of England · National Institute of Economic and Social Research · David Aikman · UK

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