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UK Economy in Danger of Overheating Says Leading Thinktank

Ahead of the Bank of England’s interest rate decision Alex Brazier, deputy head of Blackrock Investment Institute, has said the economy is “effectively overheating” after a “big labour supply shock”.

He said the Bank’s Monetary Policy Committee must decide “what price it is willing to pay” to damage the UK economy – what he dubbed creating “growth weakness” – to bring inflation down.

He told BBC Radio 4’s Today programme: “The Bank faces this difficult trade off. The UK has had a reasonably big labour supply shock.”

“The economy is effectively overheating and so if the Bank wants to bring inflation down quickly, it has to generate some sort of growth weakness or continued growth weakness.”

“How much growth weakness is it looking to tolerate? What price is it willing to pay to bring inflation down? That’s the thing where the market could do with a bit more guidance.”

The BoE is widely expected to increase interest rates by 25 basis points at midday, its 12th consecutive rise, taking the Base Rate to 4.5%.

Source : ProActive