Bank Base Rate remains 0.1% despite short-term inflationary pressures

Bank Base Rate remains 0.1% despite short-term inflationary pressures

14:41 PM, 24th June 2021, About a month ago

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The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to keep the Bank Base Rate at 0.1% and by a majority of 8-1 to continue with its existing programme of UK government bond purchases (QE).

Global GDP growth and price pressures in advanced economies have increased further than anticipated reflecting strong demand for goods, rising commodity prices, supply-side constraints and transportation bottlenecks, and these have started to become apparent in consumer price inflation, but expectations suggest that this will be a short-term pressure.

12 month CPI inflation rose from 1.5% in April to 2.1% in May. This is above the Bank’s medium-term 2% target and 0.3% higher than expected in the May Report. Core CPI inflation has also risen from 1.3% to 2.0%. This is primarily due to global cost pressures increasingly being passed through into manufacturing prices and CPI inflation is expected to increase further above target with inflationary pressures on energy and other commodity prices, and is likely to exceed 3% for a temporary period.

The MPC’s summary of the economic outlook is that the direct impact of rises in commodity prices on CPI inflation will be temporary, and the economy will experience strong short term GDP growth and above target CPI inflation, after which growth and inflation will fall back.

“The MPC does not intend to increase interest rates at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”



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