New CPI data from the ONS shows inflation has eased slightly to 3.6%, driven largely by lower energy costs. This continues a pattern we’ve seen for well over a year: while individual components of inflation move up and down month-to-month, the overall trend has been a steady decline. 

Despite this, I have noticed that it seems the Bank of England continues to respond to each monthly CPI release as if it were a decisive signal about the direction of the economy. When inflation ticks up slightly because of one volatile category; fuel, airfare, or a specific food item. The Bank delays action. When it ticks down, they signal potential cuts. 

If decisions are going to be made on monthly fluctuations alone, we may as well have an algorithm run monetary policy. 

We should be assessing the broader macroeconomic landscape, not reacting to short-term volatility in a single data point. 

Because the inflation we experienced was never rooted in domestic demand. 
It was driven by clear supply-side shocks: 

• Global energy prices 

• Pandemic-era supply disruptions 

• The war in Ukraine 

• and, uniquely for the UK, Brexit-related frictions 

These were not issues interest rates could meaningfully influence. Yet interest rates remain high even as the underlying causes of the inflation spike have eased. 

This matters, because whilst monetary policy doesn’t affect the causes of inflation we face, higher interest rates directly reduce: Higher interest rates directly reduce: 

• Disposable income, through higher mortgage repayments 

• Household resilience, as budgets tighten 

• Business investment, as borrowing becomes too expensive 

• Consumer demand, which weakens growth 

• Wellbeing, through income pressure, lower investment in social and community activities, higher labour burdens, and increased financial instability.  

In a period where the UK economy is already showing signs of stagnation, and in some sectors, contraction, keeping rates high risks holding the economy down precisely when it needs room to breathe. 

I believe it is time to expand on the question “Is inflation at target yet?” , and instead ask ourselves, what is the cost of prioritising a perfect inflation number over economic growth? 

If the long-term trend is clearly downward — and has been for many months — then monetary policy should reflect that. Rate cuts should be based on long term vision, not month-to-month noise. 

The Bank of England now has an opportunity to shift from reactive policymaking to a more strategic, long-term approach: one that recognises the nature of the inflation we experienced, the supply-side forces that created it, and the real economic pressures households and businesses face today.

Further cuts should be made at every given opportunity.