The governor of the Bank of England recently said: “We are not doomed, far from it. But we are in difficult times”. No kidding
Save time by listening to our audio articles as you multitaskNo kidding. The bank must bear down on eye-wateringly high annual inflation, which reached 9.4% in June and is set to climb into double digits this autumn. That is far above its official target of 2%. The political environment is becoming more hostile: Liz Truss, the front-runner in the race to become leader of the Conservative Party and Britain’s next prime minister, has been overtly critical of the bank.
Economic fine-tuning is difficult at the best of times. Raise interest rates too fast, and central banks risk stifling growth unnecessarily. Move too slowly, and they risk inflation becoming entrenched. It is devilishly hard right now. Bruna Skarica of Morgan Stanley, a bank, says that compared with the Federal Reserve and the European Central Bank, Britain’s central bank is “navigating what is probably the toughest trade-off between growth and inflation”.
Steeper rate rises will do nothing for souring public sentiment. Britons are already adjusting to pricier borrowing; over the six months to June interest rates for a common two-year fixed mortgage rose at the fastest pace since at least 1995. It may be too much to ask the public to understand that maintaining inflation at 2% would have required both superhuman foresight and an enormous recession. But politicians really ought to know better.
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