Recommendation 17

The key points made by witnesses on macroeconomic policy issues were: • Global energy prices and supply chain disruptions arising from the pandemic are the main factors behind the outbreak of inflation. But second-round effects, in the form of inflation expectations among the public, and domestic factors in the UK, such as a tight labour market, Brexit, and weakness in sterling, could mean that inflation will not go automatically back to the 2 per cent target once energy prices stabilise or fall back. • There were mixed views on whether the Monetary Policy Committee should have raised rates earlier. Some former Monetary Policy Committee members now advocate steeper rises than the current Committee appears to have in mind, and there was concern that the Bank may need to do more to prepare people for the possibility that interest rates rise by more than currently indicated by its forecasts and guidance. Jobs, growth and productivity after coronavirus 65 • Interest rates are currently on a tightening cycle, but there was disagreement in the evidence we received over whether interest rates and inflationary pressures would continue to rise or would return to the low levels of the period between the financial crisis and recession. However, there was a general agreement amongst witnesses that it is desirable to have interest rates away from zero and to have quantitative easing wound down. • There were mixed views on the suitability of the existing 2 per cent inflation target set for the Monetary Policy Committee, but most witnesses felt that it was still suitable. • Witnesses did not express concerns to us about whether the Monetary Policy Committee had acted independently of the Government during and after the pandemic, although some noted the possibility of a perception of such interference. • Some witnesses argued that a looser fiscal policy could have helped lift interest rates off the floor over the period since the financial crisis, and that fiscal policy was too foc