IMF issued a report today suggesting that with UK inflation currently 2% above its neutral rate estimate, BoE should consider moving towards monetary easing.
IMF highlighted the risks of “delayed easing”, cautioning that while BoE emphasizes the need to wait for clearer signs of reduced inflation persistence, holding off too long could be detrimental.
Additionally, keeping the Bank Rate unchanged as inflation and inflation expectations decrease would “raise ex-post real rates”, which could hinder or even reverse the economic recovery. This scenario might lead to “extended undershooting of the inflation target”.
To address these concerns, IMF recommends that BoE implement rate cuts totaling 50-75 basis points in 2024. This would help balance the risks of premature easing against the need to support economic growth and ensure inflation remains on target.
Full IMF report on the UK here.
