Only a year ago it would have hardly seemed conceivable to question the Bank of England's performance as the director of Britain's interest rate policy. Now, barely a day goes by without another reminder that the Monetary Policy Committee made a mistake, and now we are all paying the price.
The mistake in question was its decision two years ago to cut borrowing costs to 4.5pc - a move which, significantly, Governor Mervyn King objected to. It was that decision which is largely responsible for today's spectre of inflation.
Admittedly, the Bank has had to contend with higher prices generated both home and abroad. The decade-long dividend of globalisation was to push down import prices.
Now, we are importing inflation from abroad, as Chinese manufacturers try to recoup the extra energy costs they have been facing.
However, over the past year, the UK has developed an inflation problem of its own - the worst in the West, and for this the Bank is responsible.
It was wrong to cut rates in August, because it gave the impression that more cuts would follow. It was wrong not to reverse that more quickly, and to hesitate before lifting rates to their current level. It ought to lift them one more time today, rather than waiting a few months, as the market expects.
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Thursday, 7 June 2007
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