BOE rate hike was the right move to reach 2% inflation, IMF official says

THE Bank of England (BOE) did the right thing with its large interest-rate hike last week, and the UK central bank is on track to get consumer-price growth down to 2 per cent, according to an official at the International Monetary Fund (IMF).

“Inflation has been more persistent than expected, so that tightening move was important,” Alfred Kammer, the fund’s European director, said. “Are they going to achieve the inflation target by mid-2025? We are expecting that, and that’s one important element.”

Last week, the BOE ramped up its pace of tightening with a surprise half-point move. This came after data showed a surge in underlying consumer-price growth to a 31-year high, forcing the hand of policymakers. That aggression is making the BOE stand out, even as its global peers renew their own urgency in tackling inflation. 

“We welcome the big move,” Kammer said. “Now the Bank of England needs to look meeting by meeting, and see what happens on the inflation dynamics, if inflation is going to come down.” 

He reiterated the IMF’s view that the UK economy will probably expand only 0.4 per cent in 2023, saying that it faces “a huge slowdown in growth” from last year.

When asked if Britain faces one of the most daunting challenges of any Group of Seven member, Kammer replied: “Absolutely.” He added that the UK is in “a particularly difficult situation”.

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“It was facing the demand shock which the US was facing, and it was facing the terms of trade shock and the energy-supply shock that the rest of Europe was facing.”