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Inflation: raising interest rates was never the right medicine – here’s why central bankers did it anyway

We need to start cutting rates, but there’s something that has to happen first.

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Pain, no gain? Bank of England Governor Andrew Bailey. IMF, CC BY-SA

Inflation remains too high in the UK. The annual rate of consumer price inflation to September was 6.7%, the same as a month earlier. This is well below the 11.1% peak reached in October 2022, but the failure of inflation to keep falling indicates it is proving far more stubborn than anticipated.

This may prompt the Bank of England’s Monetary Policy Committee (MPC) to raise the benchmark interest rate yet again when it meets in November, but in my view this would not be entirely justified.

In reality, the rate hikes that began two years ago have not been very helpful in tackling inflation, at least not directly. So what’s the problem and is there a better alternative?

Right policy, wrong inflation

Raising interest rates is the MPC’s main tool for trying to get inflation back to its target rate of 2%. The idea is that this makes it more expensive to borrow money, which should reduce consumer demand for goods and services.

The trouble is that the type of inflation recently witnessed in the UK seems less a problem of excessive demand than because costs have been rising for manufacturers and service providers. It’s known as “cost-push inflation” as opposed to “demand-pull inflation”.

Inflation rates (UK, US, eurozone)

Graph comparing inflation rates of UK, US and eurozone
UK = dark blue; eurozone = turquoise; US = orange. Trading View

Production costs have risen for several reasons. During the COVID-19 pandemic, central banks “created money” through quantitative easing to enable their governments to run large spending deficits to pay for furloughs and other interventions to help citizens through the crisis.

When countries started reopening, it meant people had money in their pockets to buy more goods and services. Yet with China still in lockdown, global supply chains could not keep pace with the resurgent demand so prices went up – most notably oil.

Oil price (Brent crude, US$)

Chart showing price of Brent crude oil
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Then came the Ukraine war, which further drove up prices of fundamental commodities, such as energy. This made inflation much worse than it would otherwise have been. You can see this reflected in consumer price inflation (CPI): it was just 0.6% in the year to June 2020, then rose to 2.5% in the year to June 2021, reflecting the supply constraints at the end of lockdown. By June 2022, four months after Russia’s invasion of Ukraine, CPI was 9.4%.

The policy problem

This begs the question, why has the Bank of England (BoE) been raising rates if it’s unlikely to be effective? One answer is that other central banks have been raising rates. If the BoE doesn’t mirror rate rises in the US and eurozone, investors in the UK may move their money to these other areas because they’ll get better returns on bonds. This would see the pound depreciating against the US dollar and euro, in turn increasing import prices and aggravating inflation.

Part of the problem has been that the US has arguably faced more of the sort of demand-led inflation against which interest rates are effective. For one thing, the US has been less at the mercy of rising energy prices because it is energy self-sufficient. It also didn’t lock down as uniformly as other major economies during the pandemic, so had a little more space to grow.

At the same time, the US has been more effective at bringing down inflation than the UK, which again suggests it was fighting demand-driven price rises. In other words, the UK and other countries may to some extent have been forced to follow suit with raising interest rates to protect their currencies, not to fight inflation.

What next

How harmful have the rate rises been in the UK? They have not brought about a recession yet, but growth remains very weak. Lots of people are struggling with the cost of living, as well as rent or mortgage costs. Several million people are due to be hit by much higher mortgage rates as their fixed-rate deals end between now and the end of 2024.

UK GDP growth (%)

Chart showing the annual rate of GDP growth
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If hiking interest rates is not really helping to curb inflation, it makes sense to start moving in the opposite direction before the economic situation gets any worse. To avoid any damage to the pound, the answer is for the leading central banks to coordinate their policies so that they cut rates in lockstep.

Unless and until this happens, there would seem to be no quick fix available. One piece of good news is that the energy price cap for typical domestic consumption was reduced from October 1 from £1,976 to £1,834 a year. That 7% reduction should lead to consumer price inflation coming down significantly towards the end of 2023.

More generally, the Bank of England may simply have to hope that world events move inflation in the desired direction. A key question is going to be whether the wars in Ukraine and Israel/Gaza result in further cost pressures.

Unfortunately there is a precedent for a Middle East conflict leading to a global economic crisis: following the joint assault on Israel by Syria and Egypt in 1973, Israel’s retaliation prompted petroleum cartel OPEC to impose an oil embargo. This led to an almost fourfold increase in the price of crude oil.

Since oil was fundamental to the costs of production, inflation in the UK rose to over 16% in 1974. There followed high unemployment, resulting in an unwelcome combination that economists referred to as stagflation.

These days, global production is in fact less reliant on oil as renewables have become a growing part of the energy mix. Nonetheless, an oil price hike would still drive inflation higher and weaken economic growth. So if the Middle East crisis does spiral, we may be stuck with stubborn, untreatable inflation for even longer.

Robert Gausden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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LIST to coordinate Horizon Europe project on next generation of 6G mobile networks

The Luxembourg Institute of Science and Technology (LIST) will coordinate a project on 6G mobile networks funded by the Smart Networks and Services Joint…

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The Luxembourg Institute of Science and Technology (LIST) will coordinate a project on 6G mobile networks funded by the Smart Networks and Services Joint Undertaking (SNS JU) under the Horizon Europe programme. Entitled 6G-TWIN, the project is one of the 27 new research and experimentation initiatives selected from the second SNS JU call for proposals, which will all start operating from January 1, 2024. Established by the European Commission in 2021, SNS JU serves as a foundation for fostering the growth of intelligent communication components, systems, and networks, which play a crucial role in constructing a top-tier European supply chain for cutting-edge 5G and upcoming 6G technologies.

Credit: LIST

The Luxembourg Institute of Science and Technology (LIST) will coordinate a project on 6G mobile networks funded by the Smart Networks and Services Joint Undertaking (SNS JU) under the Horizon Europe programme. Entitled 6G-TWIN, the project is one of the 27 new research and experimentation initiatives selected from the second SNS JU call for proposals, which will all start operating from January 1, 2024. Established by the European Commission in 2021, SNS JU serves as a foundation for fostering the growth of intelligent communication components, systems, and networks, which play a crucial role in constructing a top-tier European supply chain for cutting-edge 5G and upcoming 6G technologies.

Beyond 5G

The rapid integration of digital technology across industries like transportation and manufacturing has boosted the need for efficient communication and computing services. To meet this, innovative approaches for 6G architecture are crucial, aiming to go beyond current 5G capabilities.

“Each generation of mobile technology takes roughly a decade to evolve from conception to commercial deployment,” explains Sébastien Faye, 6G-TWIN Project Coordinator.  “Starting from the first generations, which brought basic cellular connectivity, through 5G, which facilitates revolutionary applications like connected and automated mobility, each iteration introduces new capabilities to meet a demand that is continually growing. Networks are becoming increasingly complex and distributed, requiring a large variety of technologies to operate. With 6G, which is now on the horizon for around 2030, it is essential to design, experiment and standardize new network architectures with more intelligence and automation – which is what we will be proposing in this project.”

European 6G roadmaps prioritize an AI-native management system for complex networks. These networks need to be sustainable, energy-efficient, and adaptable to various services and business models. Establishing a consistent unified communication and computing architecture requires unconventional methods, along with collaboration among standardization groups and industry leaders for practical market integration.

Leveraging AI for next-generation 6G architecture

To achieve this, the 6G-TWIN consortium “will explore the concept of Network Digital Twinning (NDT) and its integration into future 6G systems”, says Faye. Creating a real-time digital replica of the physical network infrastructure (i.e., NDTs) means creating a sandbox in which it is possible to train models and test different scenarios before deploying them on physical network controllers. “6G will enable real-time interaction between physical networks and these digital copies, with the aim of optimizing various parameters, anticipating failures, improving energy efficiency and so on,” he adds, “thus paving the way for highly efficient and intelligent networks.”

The project also includes plans to create demonstrators that validate the concepts developed, adds Faye. These demonstrators encompass teleoperated driving and energy-efficient network distribution. “By exploring these real-world applications, the project will not only contribute to the theoretical advancement of 6G but also demonstrate its practical feasibility – thanks to a wide range of expertise from the 11 project partners.”

The 6G-TWIN consortium is made up of multiple partners, ranging from universities and research centres (IMEC, Politecnico di Bari, Technische Universität Dresden, Université de Bourgogne) to SMEs (Accelleran, Research to Market Solution France, Ubiwhere) and large industrial entities (Ericsson Araştırma Geliştirme ve Bilişim Hizmetleri A.Ş., Proximus Luxembourg, VIAVI Solutions). From Luxembourg, the collaboration includes Proximus Luxembourg/Telindus, with whom LIST already has a collaboration agreement on the development of business use-cases based on advanced connectivity. With a total grand budget of €4 million over three years, this initiative exemplifies the European Commission’s commitment to fostering innovation and research that will shape the future of wireless communication, and, within LIST, another step towards the creation of a strong centre of excellence around Digital Twin Technologies.


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Moving muscle fibers with magnets “programs” how they align within tissue

Stimulating muscle fibers with magnets causes them to grow in the same direction, aligning muscle cells within tissue, Massachusetts Institute of Technology…

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Stimulating muscle fibers with magnets causes them to grow in the same direction, aligning muscle cells within tissue, Massachusetts Institute of Technology (MIT) and Boston University investigators report October 20 in the journal Device. The findings offer a simpler, less time-consuming way for medical researchers to program muscle cell alignment, which is strongly tied to healthy muscle function.

Credit: Ella Marushchenko

Stimulating muscle fibers with magnets causes them to grow in the same direction, aligning muscle cells within tissue, Massachusetts Institute of Technology (MIT) and Boston University investigators report October 20 in the journal Device. The findings offer a simpler, less time-consuming way for medical researchers to program muscle cell alignment, which is strongly tied to healthy muscle function.

“The ability to make aligned muscle in a lab setting means that we can develop model tissues for understanding muscle in healthy and diseased states and for developing and testing new therapies that combat muscle injury or disease,” says senior author Ritu Raman (@DrRituRaman), an MIT engineer. A better understanding of the rules that govern muscle growth could also have applications in robotics, she adds.

In a previous investigation, Raman and colleagues found that “exercising” muscle fibers by making them contract in response to electrical stimulation for 30 minutes a day over the course of 10 days made the fibers stronger. This time, the researchers wanted to explore whether mechanically stimulating the muscle fibers over the same time frame (rather than letting them respond on their own) would have the same result. To investigate, they developed a method to mechanically stimulate muscle tissue that differs from typical lab techniques.

“Generally, when people want to mechanically stimulate tissues in a lab environment, they grasp the tissue at both ends and move it back and forth, stretching and compressing the whole tissue,” said Raman. “But this doesn’t really mimic how cells talk to each other in our bodies. We wanted to spatially control the forces between cells within a tissue, matching native systems.”

To stimulate the muscle cells in a more true-to-life way, Raman and her team grew cells in a Petri dish on a soft gel that contained magnetic particles. When they would move a magnet back and forth under the gel, the particles moved back and forth, too, which “flexed” the cells. The researchers could precisely control the way the gel moved, and, in turn, the magnitude and direction of the forces the cells within experienced, by changing the strength and orientation of the magnet. To measure the alignment of the muscle fibers within the tissues and whether they contracted in synchrony, the team’s collaborators at Boston University developed a custom software that automatically tracked videos of the muscle and generated graphs of its movement.

“We were very surprised by the findings of our study,” said Raman. While mechanically stimulating the muscle fibers over the 10-day period did not seem to make them any stronger, it did cause them all to grow in the same direction.

“Furthermore, we were excited to find that, when we triggered muscle contraction, aligned muscle was beating synchronously, whereas non-aligned muscle was not beating rhythmically,” said Raman. “This confirmed our understanding that the form and function of muscle are intrinsically connected, and that controlling form can help us control function.”

Raman and colleagues plan to take the study further by investigating how different mechanical stimulation regimens impact both healthy and diseased muscle fibers. Additionally, they plan to study how mechanical stimulation affects other types of cells.

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The researchers were supported by the US DoD Army Research Office Early Career Program, the NSF CAREER program, the NEC Corporation Fund, and the NSF Graduate Research Fellowship Program.

Device, Rios and Bu et al. “Mechanically programming anisotropy in engineered muscle with actuating extracellular matrices.” https://www.cell.com/device/fulltext/S2666-9986(23)00149-7 

Device (@Device_CP), is a physical science journal from Cell Press along with Chem, Joule, and Matter. Device aims to be the breakthrough journal to support device- and application-oriented research from all disciplines, including applied physics, applied materials, nanotechnology, robotics, energy research, chemistry, and biotechnology under a single title that focuses on the integration of these diverse disciplines in the creation of the cutting-edge technology of tomorrow. Visit http://www.cell.com/device/home. To receive Cell Press media alerts, contact press@cell.com.


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Ancient sea monster remains reveal oldest mega-predatory pliosaur

The fossils of a 170-million-year-old ancient marine reptile from the Age of Dinosaurs have been identified as the oldest-known mega-predatory pliosaur…

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The fossils of a 170-million-year-old ancient marine reptile from the Age of Dinosaurs have been identified as the oldest-known mega-predatory pliosaur – a group of ocean-dwelling reptiles closely related to the famous long-necked plesiosaurs. The findings are rare and add new knowledge to the evolution of plesiosaurs. The study has been published in the journal Scientific Reports.

Credit: Joschua Knüppe

The fossils of a 170-million-year-old ancient marine reptile from the Age of Dinosaurs have been identified as the oldest-known mega-predatory pliosaur – a group of ocean-dwelling reptiles closely related to the famous long-necked plesiosaurs. The findings are rare and add new knowledge to the evolution of plesiosaurs. The study has been published in the journal Scientific Reports.

The fossils were found 40 years ago in north-eastern France. An international team of palaeontologists from the Naturkunde-Museum Bielefeld in Germany, the Institute of Paleobiology of the Polish Academy of Sciences in Warsaw, Poland, the Natural History Museum in Luxembourg and The Museum of Evolution at Uppsala University in Sweden have now analysed them and identified them as a new pliosaur genus: Lorrainosaurus.

Pliosaurs were a type of plesiosaur with short necks and massive skulls. They appeared over 200 million years ago, but remained minor components of marine ecosystems until suddenly developing into enormous apex predators. The new study shows that this adaptive shift followed feeding niche differentiation and the global decline of other predatory marine reptiles over 170 million years ago.

Lorrainosaurus is the oldest large-bodied pliosaur represented by an associated skeleton. It had jaws over 1.3 m long with large conical teeth and a bulky ‘torpedo-shaped’ body propelled by four flipper-like limbs.

Lorrainosaurus was one of the first truly huge pliosaurs. It gave rise to a dynasty of marine reptile mega-predators that ruled the oceans for around 80 million years,” explains Sven Sachs, a researcher at the Naturkunde-Museum Bielefeld, who led the study.

This giant reptile probably reached over 6 m from snout to tail, and lived during the early Middle Jurassic period. Intriguingly, very little is known about plesiosaurs from that time.

“Our identification of Lorrainosaurus as one of the earliest mega-predatory pliosaurs demonstrates that these creatures emerged immediately after a landmark restructuring of marine predator ecosystems across the Early-to-Middle Jurassic boundary, some 175 to 171 million years ago. This event profoundly affected many marine reptile groups and brought mega-predatory pliosaurids to dominance over ‘fish-like’ ichthyosaurs, ancient marine crocodile relatives, and other large-bodied predatory plesiosaurs”, adds Daniel Madzia from the Institute of Paleobiology of the Polish Academy of Sciences, who co-led the study.

Pliosaurs were some of the most successful marine predators of their time.

“Famous examples, such as Pliosaurus and Kronosaurus – some of the world’s largest pliosaurs – were absolutely enormous with body-lengths exceeding 10 m. They were ecological equivalents of today’s Killer whales and would have eaten a range of prey including squid-like cephalopods, large fish and other marine reptiles. These have all been found as preserved gut contents”, said senior co-author Benjamin Kear, Curator of Vertebrate Palaeontology and Researcher in Palaeontology at The Museum of Evolution, Uppsala University.

The recovered bones and teeth of Lorrainosaurus represent remnants of what was once a complete skeleton that decomposed and was dispersed across the ancient sea floor by currents and scavengers.

“The remains were unearthed in 1983 from a road cutting near Metz in Lorraine, north-eastern France. Palaeontology enthusiasts from the Association minéralogique et paléontologique d’Hayange et des environs recognised the significance of their discovery and donated the fossils to the Natural History Museum in Luxembourg”, said co-author Ben Thuy, Curator at the Natural History Museum in Luxembourg.

Other than a brief report published in 1994, the fossils of Lorrainosaurus remained obscure until this new study re-evaluated the finds. Lorrainosaurus indicates that the reign of gigantic mega-predatory pliosaurs must have commenced earlier than previously thought, and was locally responsive to major ecological changes affecting marine environments covering what is now western Europe during the early Middle Jurassic.

Lorrainosaurus is thus a critical addition to our knowledge of ancient marine reptiles from a time in the Age of Dinosaurs that has as yet been incompletely understood”, says Benjamin Kear.


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