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Thursday, June 13, 2024

FD Capital Analyses Bank of England’s ‘Higher for Longer’ Inflation Strategy, Issues Critique

FD Capital, a leading agency in the field of financial recruitment, has issued an analysis critical of the Bank of England’s extended ‘higher for longer’ inflation strategy. This analysis states that the Bank’s approach to inflation has been “too high, too late, and now for too long,” advocating for a cut in interest rates in the first part of 2024.

In its research, FD Capital forecasts that the 12-month rate of CPI inflation will decline to 3.1% by March 2024. The report also predicts a short-term increase in the 6-month CPI rate at the start of 2024, which is expected to stabilise at around 2%.

The agency’s findings challenge the Bank of England’s inflation control strategy, suggesting that the Bank’s response in raising interest rates was sluggish. The report contends that interest rates should have reached their peak in the summer of 2022, a whole year earlier than they did. An earlier imposition of higher inflation could have curbed inflation without necessitating such drastic rate increases.

At present, the peak interest rate is an oppressive 5.25%, yet the analysis argues that it could have peaked at a lower 3.25% had the Bank of England acted sooner. This review implies that the Bank’s ‘higher for longer’ strategy might have ended in the summer of 2023, potentially avoiding a recession.

Unexpectedly, the UK’s inflation in November recorded a substantial drop, falling to 3.9% from October’s 4.6%, primarily due to lower petrol prices. This leaves the UK economy in a precarious state, on the brink of either a deep recession in 2024 or narrowly averting it. FD Capital posits that more timely action from the Bank of England could have circumvented these economic hardships.

The report also criticises the UK government’s COVID-19 support strategies, like business loans and the furlough programme, for contributing significantly to the inflation spike, overshadowing the effects of quantitative easing or tightening.

With market experts and commentators now considering an interest rate reduction by May and a 50/50 chance of a cut in March, FD Capital’s analysis suggests that the full impact of the Bank of England’s “too high, too late, and now for too long” inflation strategy will be felt in another 9 to 12 months.


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