A thinktank has urged the Bank of England to cut interest rates in its decision later today or the economy could stagnate.
Experts at the Institute of Economic Affairs have said the base rate should be reduced from 5.25 percent to five percent.
The group has warned the Monetary Policy Committee at the central Bank “risks overkill” by keeping rates high for too long.
Trevor Williams, chairman of the Shadow Monetary Policy Committee at the IEA, said an immediate rates cut is “necessary and fully justified by the data” and set out four key reasons why.
The former chief economist at Lloyds Bank said: “Falling energy prices, weak economic growth, the contraction in money supply, and higher interest rates are succeeding in rapidly lowering price inflation.”
He added: “Forward indicators suggest a risk of a significant undershoot of the two percent inflation target. The current inflation rate is well below what the official November forecasts suggested it would be at this point.
“Moreover, inflation will drop to two per cent or below a year ahead of projections.”
The UK’s Gross Domestic Product (GDP) fell in the three months to November 2023, dropping 0.2 percent.
Figures released in November 2023 recorded zero growth in the three months to September but saw a 0.2 percent surge in the services sector.
Jeremy Batstone-Carr, European strategist at Raymond James said previously the slight monthly growth represents a timid increase in the midst of weak economic activity.
He said when the figures came out: “Today’s GDP data confirms the flatlining trend we witnessed over much of 2023 while breaking a streak of contractions with a timid increase of 0.3 percent from the previous month.
“This is the result of a mild rebound in service sector activity and retail sales, as well as a boost in recreational activity due to the timing of the school half-term holidays.
“Manufacturing output and industrial production also showed a partial recovery from October’s stark figures. Electricity and gas production was boosted by November’s colder weather, which is likely to continue over the coming chilly months.”
The Bank of England held the base rate at 5.25 percent in its previous decision.
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