The size of the recent drop in UK inflation, from 8.7 per cent in May to 7.9 per cent in June, surprised many. However, this decline was far from unexpected for keen observers tracking broad money fluctuations. Indeed, further significant reductions are inevitable into this year-end and next.

The Bank of England’s mismanagement of inflation has attracted intense scrutiny and justifiable criticism. One only needs to look at the handling of dissenters from the prevailing Keynesian orthodoxy to understand the magnitude of the Bank’s groupthink. 

Its actions, especially the pandemic-triggered money supply surge, have ignited a self-inflicted crisis. This outcome underscores the danger in discretionary monetary policies and inadequate oversight, fuelling calls for a more credible, rule-oriented framework.

The Bank's bleak growth forecast continues to warn of potential recession risks, while persistent inflationary risks necessitate vigilance rather than further interest rate hikes. The Bank must avoid stifling economic growth. The approach should be cautious and prudent, as the Bank seeks to atone for prior indifference and misguided predictions of 'transitory inflation'.

With broad money contracting, signs of an economic slowdown and disinflationary trends are clear. The effects of prior forceful monetary tightening – the full repercussions of which are yet to materialise – are already apparent in consumer and business spending behaviours, despite signs of short-lived economic resilience.

As we brace for harsher financial conditions, the government's ambitious pre-election pledge to slash inflation in half by year-end seems increasingly attainable.

However, the Bank must not overlook the profound ramifications of its decisions on the lives of ordinary people. Mortgage holders, for instance, are wrestling with the weight of spiralling repayments. With around 2.4 million fixed-rate mortgages coming due by the end of 2024, and a declining trend in house prices, the financial strain will inevitably grow.

Given its dual role – controlling inflation and maintaining financial stability – the Bank of England faces a crucial juncture. Being overly hawkish risks compounding past policy errors. It's time to hit pause, recognise the nuances of the present economic condition, and reflect on the importance of measured and steady monetary policy.

Damian Pudner

Director

Institute of International Monetary Research

In Conversation

In the hot seat… The IEA hosts interviews with some of the most prominent voices in academia, politics, policy, and media. The ‘In Conversation’ series has attracted voices as varied as David Owen and David Friedman.

Breaking Barriers

Communications Officer and Linda Whetstone Scholar Reem Ibrahim highlights the vital contribution of women to the liberty movement.

Explainers

IEA staff and fellows distil complicated and abstract ideas into digestible material. In the latest explainer, Head of Cultural Affairs Marc Glendening outlines why the Left cannot be described as ‘liberal’.

Moral Sentiments

Communications Officer Harrison Griffiths seeks common ground between classical liberalism and social justice.

IEA Podcast

Each week Director of Public Policy and Communications Matthew Lesh hosts the podcast and asks a tantalising policy question to a top thinker.

We must talk more about costs in any debate about the environment

Director General Mark Littlewood, The Times

Trade-off denial… While we all want to live on a cleaner, greener planet, discussions about climate change seldom grapple with the enormous trade-offs in reducing carbon emissions and maintaining quality of life.

Let’s be honest, taking back control with Brexit does not mean knee-jerk isolationism

Director of Public Policy and Communications Matthew Lesh, City AM

Independent, not insular… Some characterised last week’s announcement of continued CE mark recognition as a ‘Brexit climbdown’. But Brexit was merely a question of ‘who decides’, not a statement of intent to isolate Britain from the EU.

Is the housing crisis the most important issue facing young people?

Communications Officer and Linda Whetstone Scholar Reem Ibrahim, BBC Radio 5 Live

Priced out… High rents and house prices have put the dream of home ownership out of reach for a generation. Reem argued that the housing crisis is one of the key issues facing young voters and discussed ways to fix our burdensome planning system.

Who’s afraid of UPFs?

Head of Lifestyle Economics Christopher Snowdon,

The Critic

Beware false fears… ‘Ultra-processed foods’ are the target of the nanny statists’ latest crusade. In a two-part review of Chris van Tulleken’s new book Ultra-Processed People Christopher tackles anti-UPF arguments.

A liberal vision of criminal justice

Communications Officer Harrison Griffiths, IEA Blog

Arrest the decline… With policing in the UK failing its core tasks, it could be time to return to basics. The top priorities should be protecting citizens from violence, providing restitution to crime victims, and incapacitating the few who commit violent crimes.

Bank of England risks overdoing it on interest rate rises, admits chief economist

Economics Fellow Julian Jessop, Daily Telegraph

Tough Pill to swallow… After groups from Trades Union Congress to the IEA’s Shadow Monetary Policy Committee warned that the Bank of England risks overkill with its latest interest rate hikes, the Bank’s Chief Economist Huw Pill has finally agreed. Julian stated that the Bank risks overtightening and tipping the economy into recession.

Policing: a radical solution

Senior Research Fellow Jamie Whyte, The Critic

‘Ello ‘ello ‘ello… As crime rises and prosecution rates plummet, a new incentive structure for law enforcement based on competition, profit and loss could be the solution.

A Discussion on International Energy Agency’s Net Zero Report

Date: Wednesday 30th August

Time: 3.00pm — 5.00pm

Location: 2 Lord North Street, SW1P 3LB

Lucian Pugliaresi, President of the Energy Policy Research Foundation, will present A Critical Assessment of the International Energy Agency’s Net Zero Scenario, ESG, and the Cessation of Investment in New Oil and Gas Fields. The analysis claims that the International Energy Agency’s assumptions are unrealistic, internally inconsistent, and often support the case for increased hydrocarbon fuel production. IEA Energy Analyst Andy Mayer will join Pugliaresi for a discussion about the report.

RSVP: There are limited spaces available, please request a place by email.

The next generation

A packed program… For the last two weeks, the IEA has hosted twenty students at 2 Lord North Street for this summer’s undergraduate program. Expert speakers led sessions on topics from careers in politics to the economics of a four-day working week. This year’s highlight was the students' research projects. IEA staff mentored every student, who completed a ten minute presentation on their project and partook in a Q&A from fellow attendees.

Apply to be the IEA’s next Director General

The Institute of Economic Affairs welcomes applicants for the Director General role. We are looking for a visionary leader who will provide strategic direction to promote the growth and effectiveness of the IEA.

The Heterodox Church

Essential reading… As part of our  partnership with the Fraser Institute, Institute of Public Affairs, and Foundation for Economic Education, we are delighted to recommend the latest Essential Scholars material on the Austrian school of economics. Essential Scholars offers explainer videos, podcasts, and audiobooks on a wide range of key thinkers and groups in the liberal intellectual tradition.