Opinion By Mathew Carr*
The UK Monetary Policy Committee stands at a critical juncture, faced with a choice between outdated monetary orthodoxy and economic reality.
The Bank of England should act decisively today by cutting interest rates, establishing a vital macroeconomic principle for central banks worldwide: war-driven, supply-side inflation cannot be cured by crushing domestic demand.
To treat geopolitical price shocks with monetary tightening is to commit a fundamental category error.
When international conflict chokes vital energy routes and drives up the global cost of fuel and food, raising central bank interest rates does nothing to restore physical supply.
High borrowing costs cannot drill oil, clear blockaded shipping lanes, or stabilize volatile commodity markets.
Instead, using rate hikes to combat external shocks inflicts artificial scarcity on households and businesses already reeling from imported price pressures.
Renewable energy installations that protect countries from oil shocks are less likely to attract investment in a high-interest-rate environment.
That’s because investment needs too be up front for wind farms, grid upgrades, solar plants and EV-charging networks …and afterwards the energy is almost free.
So when President Trump starts a fake war in Iran he is using high oil to help big business expand profit margins and he is seeking to boost interest rates in support of his greedy banker mates.
By keeping interest rates elevated—or threatening further hikes in response to energy volatility—the Bank risks compounding an external geopolitical shock with self-inflicted economic stagnation.
Elevated borrowing costs restrict essential corporate investment precisely when capital is needed to build supply-chain resilience, expand domestic energy capacity, and improve productivity. For households, high mortgage and loan repayments drain disposable income, suffocating real economic growth while leaving the root causes of global price spikes entirely untouched.
A rate cut today would serve as a powerful act of global monetary leadership. Threadneedle Street has a distinct opportunity to break the reflexive, reactionary cycle of central bank over-tightening during times of international turmoil.
Signaling that monetary policy must strictly manage domestic demand rather than penalize economies for global supply disruptions would re-establish a rational, modern framework for central banking in an era of geopolitical instability.
Lowering interest rates is not an act of surrender to inflation; it is a necessary pivot toward economic durability. When price surges stem from foreign conflict rather than domestic overheating, the correct institutional response is to protect economic capacity, maintain productive liquidity, and foster long-term investment.
The Bank of England must lead the world today by cutting rates, demonstrating that central banks can finally distinguish between an overheated domestic market and a war-shattered global supply chain.
*with AI including Gemini
