A leading thinktank has called for the Bank of England’s inflation target to increase from 2 per cent to 3 per cent, while also suggesting they should receive power to crash borrowing costs below zero to protect against future economic shocks, The Resolution Foundation report suggested.
The thinktank called for reforms at the Bank and Treasury to get a “bigger bang for each buck” as they explained that Britain required an overhaul of its economic toolkit to allow them to respond to future economic downturns, and this includes raising the Bank’s inflation target once the existing remit had been met.
To avoid decades of rising debt or austerity, reforms should take place and Resolution also called on ministers to sanction the use of negative interest rates of up to -1 per cent, charging commercial banks to deposit money with the central bank, instead of paying interest, to encourage lending and discourage saving.
Inflation has soured to a decade high level following the Covid pandemic and Russian invasion of Ukraine, however, the thinktank said there was a danger that future economic shocks could result in a cut in borrowing costs meaning a higher inflation starting point would give the Bank more capacity to respond.
Khalid Talukder, Co-founder of DKK Partners commented:
“As the government attempts to control inflation, businesses must remain robust, despite facing economic uncertainty and high interest rates.
“UK PLC has its sights set on cementing itself as a tech superpower, developing technology to support key areas such as the FX and payments industry. However, the government must work on creating an attractive marketplace to promote innovation and international relations. As the economy moves towards growth, entrepreneurs and SMEs must remain confident that better times are ahead, acting as the engine of the economy.”
James Smith, the research director at the Resolution Foundation, said a “reset” for policymaking was required. “This reset would ensure we can support the economy in bad times and fix the fiscal roof when the sun eventually arrives.”
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