“Raising interest rates is more likely to nudge the UK into recession than curb the current spike in inflation.
“The Bank of England is facing a near impossible trade-off between soaring inflation and an economy teetering on the brink of recession. However, raising interest rates will have little effect on the global headwinds and supply constraints driving inflation, and so risks inducing a downturn by squashing consumer demand.
“Higher borrowing costs will likely drag on business investment by exacerbating the pressures facing firms, leaving many companies with little financial headroom to invest and help lift productivity.
“Policymakers must carefully consider what happens next. With core inflation trending downwards, and the recent easing in the public's expectations for inflation likely to gather momentum as economic conditions deteriorate, the case for shifting to a period of monetary stability is only likely to grow.”
ENDS