12:21 PM, 5th May 2022, About 2 weeks ago 42
The Monetary Policy Committee have voted by a majority of 6-3 to increase Bank Rate by a quarter-point to a full 1% with 12 month CPI inflation rising to 7.0% in March, around 1% higher than expected in the February Report.
This is despite the vast majority of inflationary pressure coming from external global costs that we can’t control. The price of food is the price of food and as an essential item, an increase in interest rates is not going to control our demand or the costs. The same argument largely goes for energy and fuel.
The counter-argument is that pushing up interest rates increase the flow of money into Sterling boosting its value and decreasing the cost of goods purchased in foreign currencies.
The MPC has reaffirmed its preference in most circumstances to use Bank Rate as its active policy tool when adjusting the stance of monetary policy and has indicated further rises are predicted to be required up to around 2.5% by mid-2023, before falling to 2% at the end of the forecast period.
CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4.
Wage growth is considered a risk factor for inflationary pressure with unemployment continuing to fall to 3.8%. However, there are some signs that the cost of living crisis is already affecting consumer demand.
The overall conclusion is we will have to wait and see what happens to the global markets and supply chains over the coming months and year before a clear indication of how long it will take cost inflation to wind out.
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