Central Banks  

Govt 'navel gazing' instead of intervening in inflation

Govt 'navel gazing' instead of intervening in inflation

The Bank of England has no choice but to raise interest rates at its meeting this week, but that alone will not combat inflation, experts have said.

The UK’s central bank is due to announce a rate decision this Thursday (August 4) and governor Andrew Bailey has previously said a rate rise of 0.5 per cent will be on the table.

The US Federal Reserve and European Central Bank hiked rates with speed this summer as inflation continues to rise.

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However, the cure could be worse than the disease, said director of The Mortgage Quarter, James Miles.

“The true rise in prices is supply-driven throughout the world, which will continue to get worse due to the war in Ukraine,” he said. 

“We need more leadership and government intervention to have meaningful results instead of targeting the already income-stretched population with rate rises.”

Director at Nottingham-based Harmony Financial Services, Imran Hussain, agreed, stating that although the central bank does not really have a choice but to increase rates, that alone will not stop inflation. 

“There will have to be government intervention, too, specifically in relation to utilities. 

“If not, whatever the Bank of England does still won't help ordinary working people in what is fast becoming an unprecedented cost of living crisis."

Chairman of Horley-based Choices Estate Agency, Simon Shinerock, said there are “pros and cons” of raising rates, mostly to do with exchange rates.

“If we don’t increase rates, then the pound will get weaker and imports more expensive, thus adding to inflation,” he said. 

However, this would mean UK exports would be more competitive.

“If we increase rates, the pound will strengthen, making imports cheaper, but our exports less competitive,” he added. 

Meanwhile, Mansfield-based Shaw Financial Services founder Lewis Shaw, said if the bank doesn’t raise rates, there’s a risk politicians will scapegoat them for further adding to inflationary pressures.

“We don’t have a joined-up approach to solving this inflationary crisis or an answer to permanently higher prices, which will make everyone poorer,” he said.

“The government has taken its eye off the ball and is navel gazing when we need targeted political intervention."

Late last month, Chancellor of the Exchequer, Nadhim Zahawi, responded to inflation reaching historic levels of 9.4 per cent by saying the government had taken action to strengthen the public finances, since inflation presented risks such as debt interest costs.