![\"Andrew](\"https:\/\/www.europesays.com\/uk\/wp-content\/uploads\/2026\/05\/Andrew-Bailey-Bank-of-England-e1777902925795.jpg\")
\t\tThe Bank of England, headed up by Andrew Bailey, held interest rates last week\t<\/p>\n\t\t\tTuesday 05 May 2026 5:22 am
\n\t\t\t\t\t\u00a0|\u00a0\u00a0Updated:\u00a0<\/p>\n
\t\t\tMonday 04 May 2026 3:04 pm\n\t<\/p>\n
\t\tThe Bank of England, headed up by Andrew Bailey, held interest rates last week\t<\/p>\n
the Bank of England\u2019s MPC is acting as if its role is to support the Chancellor and protect the real economy, rather than control inflation, writes Paul Ormerod<\/p>\n
The Bank proclaims on its website that \u201cWe set monetary policy to achieve low and stable inflation. This is our primary monetary policy objective\u201d. It goes on to note that in practice this means \u201ckeeping inflation at two per cent over the medium term\u201d.<\/p>\n
Taking the broad measure of inflation, the consumer price index (CPI), the last time it was below two per cent was in September 2024, at 1.7 per cent. But that was the only month in the past five years when this was the case.<\/p>\n
In April 2021 inflation was 1.5 per cent. By the end of that year it had risen to 5.4 per cent. It rose almost throughout the whole of 2022, finishing the year at 10.5 per cent. Since then it has averaged 4.3 per cent, more than double the Bank\u2019s target rate.<\/p>\n
The Monetary Policy Committee (MPC) believes the main tool to control inflation is Bank Rate, the interest rate the Bank pays on deposits placed with it overnight by commercial banks. Increasing the rate is believed to slow down economic activity, which in turn will lead to a moderation in inflation.<\/p>\n
\t\tInflation in not under control<\/p>\n
Given that inflation has consistently been above target, it seems rather curious that since August 2023 the only movements in Bank Rate have been down, from 5.25 per cent to 3.75 per cent. The Bank attempted to justify the decision by publishing three scenarios<\/a> on the projected path of inflation over the next few years. The scenarios differ in essence on what happens to the price of oil. In the most pessimistic outlook, in which oil is at $130 a barrel for the rest of 2026, inflation peaks at six per cent and remains above the two per cent target even in 2028. But even in the other two scenarios, which assume lower oil prices, inflation is projected to be higher than the target in both 2026 and 2027.<\/p>\n \t\t\t\t\tRead more<\/p>\n \t\t\tWar propels UK inflation in new risk for interest rate hikes<\/a><\/p>\n According to the Bank It is only in 2028 that inflation comes under control \u2013 a full eight years since it was last below two per cent.<\/p>\n Economics is full of rather elastic phrases such as the \u201cmedium term\u201d, the time period over which the Bank is expected to keep inflation at two per cent. But it would require very substantial generosity to describe eight years as being the \u201cmedium term\u201d. And it will be that length of time over which inflation has exceeded its target \u2013 always provided that the Bank\u2019s call on oil prices proves correct, otherwise it will be for the entire decade of the 2020s.<\/p>\n The Bank of England is not like the Fed<\/p>\n The Federal Reserve, the American counterpart of the Bank of England, has an explicit dual mandate. It is meant to try to control inflation, but it is also expected to pay attention to the consequences of interest rate changes for growth and unemployment.<\/p>\n When Gordon Brown made the Bank independent in 1997, its focus was meant to be on controlling inflation. It was not given the wider brief of the Federal Reserve.<\/p>\n The inflation outlook over the next couple of years requires both tight monetary policy and a sharp rise in interest rates. Given the Bank\u2019s own scenarios, an immediate increase in Bank Rate to five per cent would be perfectly reasonable.<\/p>\n This would of course slow down the economy, already in a fragile state. But the MPC is acting as if it thinks its role is to support the Chancellor and protect the real economy rather than its actual job \u2013 getting to grips with inflation.<\/p>\n Paul Ormerod\u00a0is an economist at Volterra Partners LLP<\/a> and an honorary professor at the Alliance Business School at the University of Manchester<\/p>\n \t\t\t\t\tRead more<\/p>\n
At the MPC meeting last week<\/a>, eight members voted to leave Bank Rate as it is, with only the Bank\u2019s chief economist, Huw Pill, voting for a modest increase to four per cent.<\/p>\n