Adam Posen, who heads the Washington-based Peterson Institute, said that while the Bank of England did not want employees to lose their jobs, it should raise interest rates now to stave off inflationary pressures exacerbated by them. Brexit trade and immigration restrictions. The BoE’s Monetary Policy Committee (MPC) is meeting on Thursday and is expected to raise interest rates by 0.25%, raising the central bank’s key interest rate to 1% – its highest level since early 2009. Inflation peaked at 7 % in March – its highest level for 30 years. Posen, who was a member of the MPC from 2009 to 2012, said the central bank needed to take more drastic measures after Brexit cut labor supply in the UK and reduced workforce flexibility. Without a government turnaround on trade restrictions and immigration policy, the BoE must shrink the economy. “The central bank has no choice but to cause a recession when a wide range of prices is rising at such a strong rate,” he said. “Inflation is bound to fall after more than a year, when it is more than 2 percentage points above the 2% target level during a full-time period.” He said wages were rising due to labor shortages and that this was likely to increase inflationary pressures for several years unless further rate hikes were imposed. He added that if wages failed to keep pace with inflation for the rest of the year, this showed that the bargaining power of workers’ wages was weak and that there were even more reasons to put a brake on rising prices. “There is a greater risk that inflation will continue without further action in the UK compared to other major economies. The US is going through a period of high inflation where monetary policy will stop. Eurozone countries do not really have much inflation other than the rise in energy and food prices caused by the war in Ukraine. “The UK, on the other hand, has Brexit, which is going to reduce labor supply in the long run, and trade restrictions that will keep prices higher than they would otherwise be,” he said. Opinions differ among academics and city analysts on the central bank’s next steps, with some, including Posen’s predecessor in the MPC, labor market economist Danny Blanchflower, arguing that interest rates should remain low to protect an economy. already heading for recession. Blanchflower, a professor at Ivy League Dartmouth College, said several recent indicators showed that the UK was already in recession and it would be irresponsible for the BoE to give it an extra boost. But those calling for successive interest rate hikes this year argue that faster wage growth and strong savings levels among middle- and upper-income groups will mean that demand will outstrip supply, creating even higher inflation. They say companies do not have the skilled workers and raw materials they need to meet demand and are likely to respond by further raising prices. Employee shortages pushed vacancy rates to a new record in the latest labor market figures covering the three months to February. The industries that were hardest hit – IT, manufacturing, construction and hospitality – were those that relied more on foreign-born workers, mostly from the EU, Posen said. He added that the UK was “much more open to trade and immigration and attractive to foreign investment before the 2016 Brexit vote”. Ken Rogoff, a Harvard professor and former chief economist at the International Monetary Fund, said: “A recession in Europe is almost inevitable if the war in Ukraine escalates and the Chinese economy is already in recession. Writing on the Project Syndicate website, he added: “And as consumer prices in the US are currently growing at the fastest pace in 40 years, the prospects for a mild landmark price hike are growing. ». Subscribe to the daily Business Today email or follow the Guardian Business on Twitter at @BusinessDesk Last week, Brexit Opportunity Minister Jacob Rees-Mogg said Britain would postpone physical checks on fresh food imported from the EU for the fourth time, citing the possibility of costing British companies 1 1 billion in bureaucracy. A report last week by researchers at the LSE Center for Financial Performance said the introduction of new trading rules after Brexit last year caused a “big shock” to UK-EU trade. The investigation found that UK imports from the EU fell by 25% compared to those from elsewhere in 2021. Its authors suggested the new rules had also prompted many smaller companies to cut ties with EU-based suppliers and cut off exports to the 27-member bloc.
