Bank Base Rate unanimously held at 0.1%

The Bank of England Monetary Policy Committee voted unanimously to hold the Bank Base Rate at 0.1% and to maintain the same levels of Quantitative Easing. This is despite CPI inflation projected to rise near term to 4% in 2021 Q4 due to energy and other goods prices, before receding back to the 2% target in the medium term.

12 month CPI inflation increased to 2.5% in June, which was 0.8% higher than expected in the May Report. Private sector pay in the three months to May was over 7% higher than a year earlier, and annual growth is projected to have peaked at around 8½% in 2021 Q2. Adjusted for the impact of the furlough scheme, the changing composition of employment during the pandemic and annual base effects, underlying pay growth appears to continue to be around pre-Covid rates.

The MPC’s expectation is that current elevated global and domestic cost pressures will be temporary, but the economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May Report

The MPC has had policy guidance in place specifying that it does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

All members confirm that in judging the appropriate stance of monetary policy, the Committee will, as always, focus on the medium-term prospects for inflation, including medium-term inflation expectations, rather than factors that are likely to be transient. In particular, the Committee will not put undue weight on capacity pressures that are frictional in nature and likely to be temporary. The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying wage pressures.

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