The Institute of Economic Affairs’ Shadow Monetary Policy Committee (SMPC) has recommended a significant reduction in the Bank of England’s Bank Rate and a cessation of Quantitative Tightening (QT).

Citing concerns over potential deflation and recession, the majority of the SMPC supported a 50 basis point cut in interest rates to 4.75%, with one member proposing a deeper cut to 4.25%.

The committee contends that urgent action is warranted due to the rapid decline in inflation, expected to fall below the Bank’s 2% target earlier than previously projected.

They argue that the Bank of England’s current monetary policy may exacerbate economic challenges by neglecting the slowdown in the money supply, potentially hindering economic growth and leading to deflation.

Dr. Andrew Lilico, chair of the SMPC and executive director of Europe Economics, stated: “The Bank of England was too slow raising rates when inflation was rising because it missed the clear message from rapid growth in the money supply data.

"It has made a similar mistake in recent months but in the opposite direction: money supply has contracted or grown only far too slowly for many months, yet the Bank has failed to cut rates.

"The consequence so far has been that inflation is well below what the Bank predicted. The consequence in the future will be inflation significantly under-shooting the target and economic growth being damaged. Rates should be cut immediately.”