The Bank of England is right to hold its nerve despite inflation fears

Prices are already rising faster than expected and could top 3 per cent over the coming months, but this is expected to be temporary and the economy is hardly booming as the pandemic continues to cause concern, writes James Moore

Perhaps the Bank of England has being paying attention to Angela Merkel (PA)

Inflation hawks were left hungry at the conclusion of the latest meeting of the Bank of England’s Monetary Policy Committee (MPC).

The MPC warned that prices, already rising faster than expected, have further to go after they spooked the City when they came in at 2.1 per cent for the year to May.

It now expects inflation to surge past 3 per cent but, crucially, only for a “temporary period”, driven in part by commodity prices, over which the Bank has little influence.

While that’s quite enough to excite the most vocal among the prophets of doom, that number still remains well short of the 5 per cent plus that the US is currently experiencing.

Crucially the Bank believes it will be temporary, just as it believes the economy’s faster-than-expected growth will be temporary.

The continued bounceback – it would be quite wrong to call it a boom because it’s far from that – obviously depends on the virus, and whether the government is able to drop the remaining restrictions next month.

Complacency when it comes to the vexatious ball of protein and RNA that causes Covid-19 is unwise indeed. That’s been proved time and again.

Ministers would dearly like to press ahead, however they haven’t pushed the button marked “confirm” for July 19, and with good reason.

Boris Johnson was still unable to resist some of his trademark bluster, though, when he huffed and puffed about the “real opportunity” for double-vaccinated Britons to travel this summer, amid intense industry pressure.

The question is will they be welcome? Germany’s leader Angela Merkel struck a note of caution, warning that the Delta variant that’s been causing Britain’s recent problems means that the pandemic “is not over”. She thinks Europe is skating on thin ice.

History tells us that Merkel is by far the more reliable of the pair. Perhaps the Bank has been paying attention.

Its vote was exactly the same as last time around. The decision to hold rates at 0.1 per cent was approved unanimously. As for maintaining the targets for quantitative easing – bond-buying with the aim of stimulating the economy – the vote went 8-1.

The free-thinking chief economist Andy Haldane was once again on his own in calling for a £50bn reduction from the intended target of £875bn worth of government paper, with some £20bn of corporate IOUs on top of that.

He has expressed his concerns about inflation loudly in recent weeks.

The question is whether anyone else will don his hawkish clothes after his departure to run the Royal Society for Arts.

Those who want to find things to worry about in the indicators will hardly be starved for material in the coming months, and nerves will surely be jangling on Threadneedle Street. The MPC’s task is far from easy at a time of significant turbulence for which there is no precedent.

On the flip side is the fact that the UK is far from out of the woods. While the outlook for employment has improved, with some sectors even showing signs of shortages, hundreds of thousands of people remain on furlough and the labour market isn’t exactly overflowing with opportunity.

So the Bank’s focus is right where it should be: on jobs and growth.

Governor Andrew Bailey was in the crosshairs for all the wrong reasons again after MPs produced a scathing report into the Financial Conduct Authority’s handling of the collapse of London Capital and Finance (LCF), an investment firm that flushed its clients’ savings down the toilet.

This happened on his watch, while he was running the regulator, and serves as a black mark on his resume. Steering UK plc into a safe harbour amid the current storm would surely serve as a counterweight.