The governor blundered by suggesting an early hike – but the least costly option is to wait and see
Did the governor of the Bank of England, Andrew Bailey, err in exaggerating the prospects of an interest rate rise? It seems so. Mr Bailey’s intervention, along with his chief economist’s, suggested the base rate might rise this week. City traders are now betting that it will do so – with the Bank’s rate-setting monetary policy committee (MPC) due to pronounce on Thursday. The governor is now damned if rates rise – giving the impression that the central bank can be talked into a hike. And he is damned if they do not – because he signalled rises that did not arrive.
There is no pressing reason for money to be made dearer. For many, employment is far more precarious than the official figures suggest. Business surveys report more pessimism than optimism about the UK’s prospects. The chancellor did not help by precipitately withdrawing the fiscal stimulus. The budget ended the furlough scheme, reduced benefits and raised taxes, leaving – as the Institute for Fiscal Studies revealed – wages stagnant for years to come. This, combined with higher interest rates and a bumpy path out of Covid, risks a recession, not a recovery.