The Bank of England should scrap the final £50 billion of its planned quantitative easing and deliver a clear signal that it is worried about rising inflation at this week’s policy decision, The Times’s shadow committee of ratesetters has said.
Tomorrow’s vote, which will be published alongside the Bank’s new economic forecasts, may reveal the biggest split since January 2020, when two policymakers voted to cut rates from 0.75 per cent to 0.5 per cent.
Two of the Bank’s eight monetary policy committee members — Sir Dave Ramsden, a deputy governor, and Michael Saunders, an external member — have hinted that they may call for an immediate end to QE because of inflation concerns. The other six are expected to vote to leave the programme at £895 billion, to complete at the end of the year. A unanimous vote to hold rates at 0.1 per cent is predicted.
The Times’s shadow MPC, an independent panel of former rate-setters, Treasury officials and senior economists, all voted this month to stop QE at £845 billion. Inflation is above target at 2.5 per cent and the Bank’s new forecasts are likely to show it peaking at close to 4 per cent this year.
Rain Newton-Smith, chief economist at the CBI, said: “I’d continue to vote to end QE but signal willingness to move on rates, rather than act now. I’m definitely hoping for more of a hawkish tone from the Bank. The uneven flow of supply and demand is causing real bottlenecks of inflation.”
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Bronwyn Curtis, a non-executive director at the Office for Budget Responsibility, agreed. “Stop QE now, adopt a more hawkish tone,” she said.
Andrew Sentance, a former ratesetter, and Sir Steve Robson, a former Treasury mandarin, called for an immediate rate rise from the present 0.1 per cent. Sentance would start “with a move to 0.25 per cent” and warned that inflation may “surge towards 5 per cent later this year”. Some of that would be temporary but “the MPC should take a precautionary approach”.
Charles Goodhart, another former rate-setter, said: “The important thing to do now is to stop making inflation worse. Stop QE now and wait to see how inflation, output, etc develop before deciding on next steps. I guess more counter-inflationary measures will soon be needed.”
Sir John Gieve, a former deputy governor at the Bank, said that Covid “still casts a shadow over the economy”. Given that, it was understandable for the Bank’s MPC to hesitate, but “ending QE is an easy way to indicate that the Bank is taking [inflation] risk seriously”.
Karen Ward, chief market strategist at JP Morgan Asset Management and a former adviser to the chancellor, reiterated her vote for an early end to QE.
