London, 3 Feb 2022
Today, the Bank of England’s Monetary Policy Committee voted to impose the second back-to-back rate rise since 2004, raising interest rates to 0.5%.
The Committee also voted unanimously to fully unwind the Bank’s stock of corporate bond purchases by 2023, a £20 billion portfolio that has drawn criticism from campaigners for ‘subsidising’ polluting companies.
David Barmes, Senior Economist at Positive Money said:
On the decision to increase the bank rate to 0.5%:
“Today’s back-to-back rate rise is another sign that policymakers are relying too heavily on blunt monetary policy tools to manage inflation. Higher interest rates will not address the current sources of inflation, and could damage the economic recovery from Covid as well as the government’s net zero target & levelling up goals.
“As the cost of living crisis spirals, the government should take action to protect the poorest through stronger price caps and direct financial support, while increasing investment in green projects to end our exposure to volatile fossil fuel prices, and dampening demand among those who can afford it through wealth taxes.”
On the unwinding of the stock of corporate bonds:
“While it is welcome that the Bank of England will no longer be subsidising multinational corporations like Shell and BP with its corporate bond purchase scheme, it’s unlikely that unwinding it will do much to address the inflation we are seeing. Corporate bond purchases were a poor use of the Bank of England’s money creation powers, and this should be an opportunity to consider new tools to more effectively increase investment in strategic sectors such as green energy.”
Notes
- At its meeting ending on 2 February 2022, the MPC voted by a majority of 5-4 to increase Bank Rate by 0.25 percentage points, to 0.5%: https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/february-2022
- “7 ways policymakers should respond to the cost of living crisis”, David Barmes, Positive Money Senior Economist, for Open Democracy, 1 Feb 2022: https://www.opendemocracy.net/en/oureconomy/how-policymakers-should-respond-to-cost-of-living-crisis/
- Positive Money is a research and campaign organisation working towards a money and banking system which supports a fair, democratic and sustainable economy. Set up in the aftermath of the financial crisis, Positive Money is a not-for-profit company funded by charitable trusts and foundations, as well as small donations from its network of over 65,000 supporters. www.positivemoney.org.
- For more information from Positive Money or to arrange a briefing/interview with a spokesperson, please contact press@positivemoney.org.uk or Anna Pick on 07948802104.
