Bank of England ‘duty bound’ to trigger recession to curb inflation
Britain’s central bank policymakers are “duty bound” when they meet this week to push the UK into recession to cap rising inflation, a former Bank of England (BoE) official has said.
Adam Posen, who runs Washington-based thinktank the Peterson Institute, said that while the Bank of England would not want workers to lose their jobs, it should hike interest rates now to squeeze out inflationary pressures made worse by Brexit trade and immigration restrictions.
The BoE’s monetary policy committee (MPC) meets on Thursday and is expected to increase interest rates by 0.25%, taking the central bank’s base rate to 1% – its highest level since early 2009. Inflation in March peaked at 7% – its highest level for 30 years.
Posen, who was a member of the MPC from 2009 to 2012, said the central bank needed to take more drastic action after Brexit reduced the UK’s labour supply and limited the flexibility of the workforce. Without a U-turn by the government on trade restrictions and immigration policy, the BoE must shrink the economy.
“The central bank has no choice but to cause a recession when a broad range of prices are rising at such a strong pace,” he said.
“It is duty bound to bring inflation down after more than a year when it has been more than 2 percentage points above its 2% target level during a period of full employment.”
He said wages were increasing due to shortages of workers and this was likely to add to inflationary pressures over several years unless further interest rate hikes were imposed. He added that if wages failed to keep pace with inflation over the rest of the year, it showed that the wage bargaining power of workers was weak and there was even more reason to put the brakes on rising prices.
“There is a greater
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