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Professor Roger Farmer comments on the Bank of England's decision to hold interest rates at 0.75%

Professor Roger Farmer comments on the Bank of England Monetary Policy Committee's decision to maintain Bank Rate at 0.75%:

"The Bank’s decision to hold rates unchanged is unsurprising given the recent data. NIESR predicts that Q2 GDP will drop by 0.2%. Inflation has been ticking down for a year or more and is not currently a big concern. Given the uncertainty surrounding Brexit, MPC members have judged, correctly in my view, that further rate increases are unwarranted at the present time.

"The mental model that MPC members use to set policy is based on the idea that inflation and unemployment move in opposite directions. My own research suggests that this is a broken model and, by continuing to follow it, there is a real danger of being stuck in a Japan style deflation trap with stagnant growth and low or even negative inflation for decades to come."

21 July 2019

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