A rocky road ahead but we are not quite in stagflation

Should “stagflation” be our word of the day? It’s the term used by the parents of proto-central bankers to scare them into eating their broccoli. It applies when you have slow or no economic growth, high inflation and high interest rates.

- JAMES MOORE

Sound familiar? Inflation in Britain is running ahead of expectations at 2.6 per cent and the Bank of England has just held rates at a restrictive 4.75 per cent.

But for an economy to be in the stagflation zone, there is one other requirement: high unemployment. Britain doesn’t have that right now (although it is expected to rise, thanks to Rachel Reeves’s decision to hike taxes on jobs).

Concern about the other problems might explain why the Bank of England’s committee voted the way it did in deciding to hold rates even when other central banks have been cutting. Its rate-setting Monetary Policy Committee (MPC) was split six to three, with the three favouring a cut to 4.5 per cent.

I had expected Swati Dhingra to vote for a cut; the external member is the mortgage holder’s best friend, a rate dove who has consistently supported cuts. She is inevitably the one when the vote goes eight to one.

She was joined this time by Sir Dave Ramsden, one of the Bank’s three deputy governors, who has voted with her before, and also by newcomer Alan Taylor. Taylor is Reeves’s first appointment and the replacement for hawkish Jonathan Haskel, who would almost certainly have voted to hold rates.