12:39 PM, 15th December 2022, About A year ago 7
The Bank of England’s Monetary Policy Committee (MPC) today voted by 6 – 3 members to mirror the Fed by increasing the Base Rate by 0.5% to a total 3.5% interest rate. Two MPC members voted to keep the Base Rate at 3% and one member voted to increase it by 0.75%.
Overall the majority of the MPC think if the November projections are accurate, further increases in Bank Rate may be required for a sustainable return of inflation to target.
With considerable uncertainties around the economy the MPC said, “if the outlook suggests more persistent inflationary pressures, it will respond as forcefully, as necessary.”
The CPI inflation rate has fallen marginally to 10.7% from 11.1% and is expected to decrease slowly in the coming months, but more sharply in the middle of 2023 as the big increases the previous year are then unwound. The medium-term target of 2% inflation set by the Bank of England is expected to be met and possibly significantly below in the 2-3 year forecast.
The bank considers inflationary pressures in the medium term to be low due to energy prices stabilising and risks around economic activity and unemployment.
Unfortunately, in the short-term, the bank feels the need to battle wage inflation and the continued worldwide supply side shortages as a hangover from Covid, especially in China.
There is also a need to protect the value of Sterling so we do not import our way further into trouble and hence the widely held belief that the Bank would mirror the Fed with the same 0.5% interest rate rise.
UK GDP is forecast to fall by 0.1% in the last quarter of this year, but this is better than predicted a month ago. However, the housing market continues to soften as household consumption is also pulled back.