12:23 PM, 17th March 2022, About 2 years ago 1
The Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase Bank Rate by 0.25 percentage points, to 0.75%. Only one Dove this time preferred to maintain Bank Rate at 0.5%, but there were no Hawks looking to increase the rate by 0.5%.
Considering the majority of inflationary pressure is coming from external costs that cannot be controlled in a Global market, this is more of a shot across the bows to manage expectations, dampen demand and control the 2% inflation target over the next 2 years than an immediate measure to slow the current increase in prices this year. Even if it seems counterintuitive to increase costs because costs are increasing!
It would seem the Bank of England think the price increases may wind themselves out by next year.
The MPC summary stated: “The Committee judges that some further modest tightening in monetary policy may be appropriate in the coming months, but there are risks on both sides of that judgement depending on how medium-term prospects for inflation evolve. The MPC will review developments in the light of incoming data and their implications for medium-term inflation, including the economic implications of recent geopolitical events, as part of its forthcoming forecast round ahead of the May 2022 Monetary Policy Report.
“In the MPC’s central projections in the February Monetary Policy Report, published before Russia’s invasion of Ukraine, UK GDP growth was expected to slow to subdued rates during the course of this year. This in large part reflected the adverse impact of the previous, already large, increases in global energy and tradable goods prices on UK real aggregate income and spending. As a result, a margin of spare capacity was projected to open up and the unemployment rate to rise to 5% by 2025. CPI inflation was expected to peak at around 7¼% in April 2022. Upward pressures on inflation were expected to dissipate over time and, conditioned on the rising market-implied path for Bank Rate expected at the time of the February Report and the MPC’s current forecasting convention for future energy prices, CPI inflation was projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years.
“Developments since the February Report are likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes.
“Regarding inflation, the invasion of Ukraine by Russia has led to further large increases in energy and other commodity prices including food prices. It is also likely to exacerbate global supply chain disruptions and has increased the uncertainty around the economic outlook significantly. Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow.”
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