Last Updated on: 5th January 2024, 06:55 am
FD Capital, a foremost boutique agency in financial recruitment, has unveiled a report that critiques the Bank of England’s extended approach to inflation. The report characterises the Bank’s inflation management as “too high, too late, and now for too long,” supporting the argument for a decrease in interest rates in early 2024.
The recruitment agency’s study forecasts a decrease in the 12-month CPI inflation rate to 3.1% by March 2024. It also anticipates an initial increase in the 6-month CPI rate at the beginning of 2024, which is expected to level out at about 2%.
FD Capital’s analysis criticises the Bank of England’s strategy in tackling inflation, suggesting that the rise in interest rates was delayed. The report argues that interest rates should have reached their zenith in the summer of 2022, a year earlier than what occurred. A swifter introduction of a higher inflation level could have controlled inflation with less significant rate hikes.
Presently, the peak interest rate is excessively high at 5.25%, whereas the report argues it could have been capped at 3.25% if the Bank of England had acted sooner. This hindsight evaluation implies that the ‘higher for longer’ strategy of the Bank could have concluded by the summer of 2023, possibly preventing a recession.
Contrary to expectations, UK inflation in November witnessed a significant drop, descending to 3.9% from October’s 4.6%, largely due to a decrease in petrol prices. This places the UK economy at a critical point, with the risk of a severe recession in 2024 or narrowly escaping it. According to FD Capital, more prompt action from the Bank of England might have mitigated the current economic challenges.
Additionally, the report scrutinises the UK government’s COVID-related support measures, including business loans and the furlough scheme, as major causes of the inflation spike, surpassing the influence of quantitative easing or tightening.
Market analysts and commentators are now speculating on an interest rate decrease by May, with a split opinion on a March cut. Nonetheless, FD Capital’s study suggests that it will take another 9 to 12 months for the UK economy to fully feel the effects of what it describes as the Bank of England’s “too high, too late, and now for too long” inflation policy.
