"The critical question is not whether what central banks such as the Bank of England have done is appropriate, but what else could be done to help stimulate long-term productivity"
The thinktank has challenged the criticism levelled at the Bank of England’s monetary policy, arguing that a rapidly ageing society gives the central bank little room to manoeuvre.
Economists at the ILC-UK estimated the statistical relationship between the historic base rate and a one quarter lag of inflation and unemployment and found that these two economic variables explain 93% of the variation in the base rate since 1989.
The ILC-UK note that whilst many commentators have been fixated on low interest rates in the UK, countries across the developed world are experiencing falling interest rates, reflecting a trend stemming from way before the 2008 crisis and subsequent unconventional central banking activity.
It also warns that while "few things are certain, barring a world war or a sudden pandemic", global populations will continue to age rapidly; given that growth amongst the older population is related to lower levels of inflation, or even deflation, this would imply that interest rates are likely to decline over time.
Ben Franklin, Head of Economics of Ageing, ILC-UK, said: "Central banks are at the limit of their powers. The critical question is not whether what central banks such as the Bank of England have done is appropriate, but what else could be done to help stimulate long-term productivity whilst ensuring that they have sufficient room to manoeuvre should a recession loom large once again."
