The Bank of England has been sharply rebuked by a think tank which claims rate cuts should have come faster.

The free-market think tank the Institute of Economic Affairs says the evidence damning the Bank comes in the increase in the headline rate of inflation from 2.0% to 2.2%.   

Consumer price inflation hit 2.2% in July, back above the Bank of England’s 2.0% inflation target, but so-called core inflation fell to 3.3% from 3.5%, while services inflation eased much more than expected to 5.2% from 5.7%.

Andrew Lilco, economics fellow at the think tank, says: “Services inflation, which the Bank has overemphasised in its thinking, is down sharply from 5.7 to 5.2% in the year to April. Concerns about price rises in hotels and restaurants in the year to June proved short-lived, falling back in July. Core CPI was down from 3.5 to 3.3%. A slight rise in headline CPI (from 2.0% to 2.2%) was expected as a result of movements in energy prices.

“Overall, the picture indicates that inflation is likely to undershoot the Bank’s expectations and supports the IEA’s Shadow Monetary Policy Committee’s long-held case that concerns about inflation being persistent based on a wage-price spiral are misplaced.

“Just as the Bank was too slow to raise raises as inflation rose, failing to see the clear signs there were in the monetary data, so as inflation has fallen it has been too slow once again, allowing monetary growth to be too low for too long and failing to grasp its significance. This is unnecessarily impeding growth at a time the economy should be seizing the opportunity for investment in emerging new technologies.

“Failing to take full advantage of this moment could mean a lasting failure to boost UK growth – a boost that is sorely needed.”

Finance experts, speaking to the Newspage agency, have generally interpreted the inflation figures as killing off the hopes of a September base rate cut by the BoE.

Ranald Mitchell, director at Charwin Mortgages, comments: While an interest rate cut in September may be less likely, lender competition with mortgage rates should support borrower demand and maintain resilience in the property market.”

Ben Perks, managing director at Orchard Financial Advisers, states: “A base rate reduction in September was always unlikely, but now seems totally out the window. It is unnerving to see inflation on the rise again, but an uptick to 2.2% is better than anticipated. No need for panic stations yet. This data should have very little impact on swap rates and the interest rates available to borrowers should continue to trickle downwards. Core inflation could ride to the rescue.”

And Riz Malik, director at R3 Mortgages, sees it this way: “While no one expected inflation to stay at 2%, the current data doesn’t point to a rate cut at the September meeting. With no meeting in October, November could still present an opportunity for the second base rate cut of the year.”