The Bank of England may be forced to generate a recession

EVENTS this week have bolstered my view that high inflation won't disappear on its own. Yesterday's 0.50% rise in interest rates from 4.50% to 5.00% shows that the Bank of England is realising this. Even so, I suspect the Bank will have to generate a recession to break the back of inflation.

- Paul Dales

We all know the problem. At 8.7% in May, consumer price inflation is still way too high. It has fallen from 11.1% last October. But it is still more than four times the Bank of England's 2.0% inflation target.

Moreover, it is higher than inflation in all other Western European countries and is more than twice the 4% rate in the US. This is one league table you don't want to top.

The cause is the imbalance between demand and supply, particularly with regards to workers. It's not that businesses are demanding unprecedented numbers of workers. The number of people with a job now is the same as before the pandemic. Instead, the number of people available to work has declined. This is mostly because more people are saying they are too sick to work.