Editorial: After months on the sidelines, it’s time for the Bank of England to enter the inflation fight

After months on the sidelines, the Bank of England’s rate setting committee should finally enter the inflation fight at their meeting on Thursday.

Arguably, governor Andrew Bailey has inherited not just Mark Carney’s role as Bank chief, but also his propensity to act like an “unreliable boyfriend” after keeping rates unchanged in November despite the City expecting otherwise.

There are strong parallels between the MPC’s first meeting of 2022 and that much criticised November gathering.

Yields on UK government debt have been climbing since the start of the year as investors reposition in preparation for a rate hike cycle in 2022, which should strengthen incentives for the Bank to lift rates tomorrow.

Hiking into an environment where yields are higher reduces the likelihood of market volatility due to the Bank already having rates where it wants them to be.

Choosing to do nothing runs the risk of sending mixed signals to investors, generating girations in financial markets, as was illustrated in the aftermath of November’s inertia.

Even more concerning than the Bank’s mixed messaging is its nonchalant attitude toward a cost of living crunch that will hurt a lot of households this year. 

While Bailey has reiterated the Bank’s deep agitation toward inflation hitting a near 30-year high, the Bank’s actions suggest otherwise.

Keeping policy ultra-stimulative even while inflation took off over the second half of last year meant the central bank lost a lot of credibility in the City.

Threadneedle Street’s persistently off-the-mark inflation forecasts chipped further away at investors’ patience.

As former rate-setter Andrew Sentance said today, Bailey needs to set the record straight after communication in the run up to the last two policy meetings was so unclear.

2022 is a big year for the Bank. It can get on the front foot on Thursday by delivering on investors’ expectations.