LONDON: The International Monetary Fund urged the Bank of England on Tuesday to avoid an “inaction bias” when it comes to raising interest rates as it forecast British inflation would hit a 30-year high of around 5.5% next year.
The BoE has said rates will need to rise to ensure that consumer price inflation - currently 4.2% - returns to its 2% target in the next couple of years.
But the central bank held off from a widely expected rate rise last month due to concern about the impact of the end of the government’s job furlough programme, and is expected to do so again on Thursday due to the spread of the Omicron coronavirus variant. The IMF, in an annual report on Britain’s economy, said the BoE faced difficult trade-offs but should not delay too long.
“It would be important to avoid inaction bias, in view of costs associated with containing second-round impacts. Careful communication would be needed to lay the groundwork with markets for potentially more frequent policy moves,” it added.
A global inflation surge due to higher energy prices and supply-chain bottlenecks created by the COVID-19 pandemic has been exacerbated in Britain by Brexit barriers to trade and migration.
Asked if the BoE should have raised rates in November, IMF Managing Director Kristalina Georgieva told reporters the central bank “has been working with sound judgement” and noted there was an important meeting this week.
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