Why the Bank of England must act now on inflation

The Bank of England must act fast on interest rates if it wants to convince us that it is even remotely serious about stopping inflation getting out of hand.

Andrew Bailey, governor of the Bank of England
Andrew Bailey, governor of the Bank of England, has no excuses now
(Image credit: © Tolga Akmen - WPA Pool/Getty Images)

Interest rates are going to rise before Christmas – or at least they certainly should. This week’s inflation numbers are just too high for the Bank of England to think it can continue to sit on its hands. In October, the consumer price index in the UK rose by 4.2% on the year, the fastest 12-month rise in a decade, and well over double the Bank’s target of 2%. There are apologists aplenty for the number; many note that if you take out food and energy prices the number falls to not much more than 3%, for example – and it is true that a good 50% of the rise is due to sharply rising energy prices (up 22.3%).

But here’s the problem: as everything uses energy, the price of energy eventually feeds into the price of everything else – so excluding it doesn’t make sense. Analysing inflation at the moment is tough – the long-term disinflationary effects of technological advancement aren’t going away, and it is still hard to tell what is a Covid-19 dislocation and what is not. But it’s also hard to deny the medium-term inflationary effects of the energy transition and the tight labour market. And at these levels it is impossible to pretend that it is not a problem.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.