Bank Base Rate increased to 0.25%

It has started: The Bank of England Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase Bank Rate by 0.15% to 0.25%. They did however vote to maintain Quantitative Easing (QE) at the current levels and not take any liquidity out of the market.

Twelve-month CPI inflation rose from 3.1% in September to 5.1% in November, triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer to explain why inflation is above the 2% target.

Relative to the November Report projection, there has been improved news for core goods and, to a lesser extent, services price inflation. The Bank expects inflation to remain around 5% through the winter period, and to peak at 6% in April 2022, with that further increase accounted for mainly by the lagged impact on utility bills of developments in wholesale gas prices.

Indicators of cost and price pressures have remained at historically elevated levels recently, and contacts of the Bank’s Agents expect further price increases next year driven in large part by pay and energy costs.

However, the good news is that CPI inflation is still expected to fall back in the second half of 2022. Therefore, the pressure on medium-term 2-3years inflation looks like reducing in the latter part of next year without large scale intervention measures of high levels of interest rates.

But watch this space, as I can’t see interest rates having anything other than a marginal effect on what are mostly uncontrollable international inflationary pressures.

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