The Bank of England is about to make another terrible mistake today when it raises interest rates by a quarter of a percentage point to 4.5 per cent.

Barring a last-minute pirouette – something the Old Lady is not known for practising – the Monetary Policy Committee (MPC) is almost certain to hike rates for the 12th time in a row in what’s been the most aggressive tightening of monetary policy for decades.

Just as the UK’s central bank allowed inflation to run out of control by not putting up rates fast enough, the danger now is that it is moving too fast at a crucial time when money supply is falling sharply, a sure sign that inflation is coming down.

As monetary policy through higher interest rates takes a long time to drill down into the real economy, the fear is that by upping rates again, the Bank is tightening demand in a fragile economy.

Rash move: The Bank of England is expected to raise interest rates by a quarter of a percentage point to 4.5%

Rash move: The Bank of England is expected to raise interest rates by a quarter of a percentage point to 4.5%

Rather than piling on more pressure, the Bank should take a deep breath and assess the impact higher rates are having before acting hastily.

And they are biting hard – 4m households face paying more for their mortgage this year, thereby dampening their own spending power. 

Early fears that roaring inflation would lead to a wage-spiral have not materialised, another reason for pausing.

Lloyds Bank recently reported a rise in defaults and payment arrears in the first few months of the year, while a Which? survey estimates that 700,000 households missed rent or mortgage payments in April. The potion is working.

Although food inflation is still stubbornly high, there are signs that prices are easing worldwide. 

This was borne out by the US CPI inflation figures yesterday, which show prices rose less than expected for April, suggesting the Federal Reserve will pause raising interest rates next month.

Wherever you look, wholesale prices for energy, commodities and food are coming down to earth after the supply chain problems created by lockdown and the shockwaves of the Ukraine war. Now China’s vast economy is open for business again, those logjams should ease still further.

There’s another powerful reason for the Bank to slow down: the recent bank failures in the US and the resulting stresses in the sector have yet to play out and there could be more withdrawals of liquidity to come.

Indeed, the Institute of Economic Affairs thinktank worries that, as the Federal Reserve is now paying interest on deposits, it is contributing to a liquidity shortage in the economy. 

A further interest rate rise would risk more bank failures and calls for more quantitative easing.

What is most worrying is that because the MPC took so long to act, its members are now obsessed with knocking inflation on the head with the wrong instrument, one which may do more harm than good. 

Groupthink does not lead to good policy-making, at whichever part of the cycle it comes.

They should listen to Donald Kohn, a former Fed and Bank of England policymaker, who told the House of Lords economic affairs committee this week that central bankers must break the stranglehold of Keynesian economics to end groupthink that may have been partly responsible for the delayed reaction to soaring inflation.

Instead, bank officials should be prepared to challenge the conventional wisdom and question historical models. MPC members would have done well to read his evidence ahead of today’s announcement.

Playing hardball now might just backfire.

White survives

As Dame Sharon White has discovered, questioning the sanctity of the John Lewis Partnership as an employee-owned business was seen by staff as the ultimate betrayal. And so it was.

But her pledge that the partnership will remain employee-owned – ‘no ifs, not buts’ – appears to have won the day.

Yet it was a mixed victory: she lost the first vote of the partners’ council, on whether they have confidence in her decisions over the last year, but won the second, on whether they are confident in her leadership moving forward.

The votes are non-binding but the council can dismiss the chair ‘in extremis’.

She looks safe, for now.

Moby Dick

Chief honcho Ignacio Garat of National Express is changing its name to Mobico because it better ‘represents our multi-modal operations, global reach and future ambitions’. No it doesn’t, sorry.

Mobico sounds more like a petrol station or a mobile app than a coach company.

And too close to Moby Dick for comfort.

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