There is increasing pressure on the Bank of England to decrease interest rates following recent hikes in mortgage expenses.
An assembly of independent economists, known as the shadow committee, has demanded a significant and immediate reduction in interest rates.
Yet, the expectation among economists is that the committee will maintain the current rate of 5.25%, unchanged since last August.
As a result of the elevated interest rates, homeowners are dealing with much higher mortgage repayments.
Rightmove states that the average rate on a five-year fixed mortgage has risen above 5% for the first time since January, while the average rate on a two-year fixed mortgage is 5.41%, up from 4.84% the previous year.
The Shadow Monetary Policy Committee, under the Institute of Economic Affairs, cautions that failure to slash rates could lead to a stagnant economy or even a recession.
After successfully addressing inflation, this Committee believes that the Bank is at risk of economic harm by keeping rates high after a deceleration in the money supply. There’s an increased chance of a needless economic downturn or deflation if the money supply isn’t accelerated.
Concerns have been raised that the Bank of England hasn’t adequately countered inflation rates, which are noticeably below their projections and soon to drop further below the 2% goal. This critique follows a review by ex-U.S Federal Reserve Chair Ben Bernanke, which faulted the Bank’s predictions and communications.
The risk of economic slowdown stems from stagnation in the broad money supply (M4), which has seen a decrease, hinting at tighter credit access. With inflation expected to fall beneath target sooner than anticipated, the Committee believes maintaining the rate at 5.25% could seriously impede UK economic growth.
To stabilize money supply growth at around 4-5%, there’s also a push to immediately cease Quantitative Tightening – the method of selling bonds to decrease money supply and elevate long-term interest rates. There is a shared belief that the Bank of England must promptly adjust its monetary policy to bolster the economy and avoid a harmful dip in the inflation rate.
Dr Andrew Lilico, the chair of the Shadow Monetary Policy Committee and Europe Economics executive director, stated: “The Bank of England was tardy in increasing rates when inflation was climbing because it ignored signs from the quick expansion of the money supply. Now there is a reverse problem; despite the contraction or slow growth of money supply for months, the Bank hasn’t reduced rates.
“Consequently, inflation is notably below what the Bank predicted. Looking ahead, this could lead to inflation falling well below the target and causing economic growth to suffer. It is critical that rate cuts are enacted without delay.”
