BlackRock cautions about the overheating of the UK economy.

A leader at BlackRock, the world’s largest asset management firm, has suggested that the Bank of England should clarify the extent to which it is willing to impair the UK economy, which is currently “overheating,” in order to reduce inflation.

The Bank of England is predicted to increase interest rates from 4.25pc to 4.5pc today at midday. This will heighten the cost of borrowing and encourage banks to enhance their savings rates.

Despite being the 12th straight rate increase, inflation remains well above the Bank of England’s 2pc target, standing at 10.1pc in April.

The Consumer Prices Index has consistently been in double digits since August of the previous year.

Alex Brazier, the deputy head of BlackRock Investment Institute, stated that the UK economy is essentially overheating following a significant labour supply shock.

He argued that the Monetary Policy Committee of the Bank needs to determine the cost they’re willing to bear to inhibit the UK economy, which he referred to as inducing “growth weakness” in order to decrease inflation.

Speaking on BBC Radio 4’s Today programme, he said: “The Bank is facing a challenging dilemma. The UK has experienced a fairly significant labour supply shock.

“With the economy effectively overheating, if the Bank aims to promptly reduce inflation, it must induce some form of growth weakness or allow it to persist.

“The key question is how much growth weakness it’s willing to accept. What cost is it prepared to incur to lower inflation? Market participants could benefit from additional guidance on this matter.”

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