Phew only a 0.25% increase in Bank Base Rate to 1.25%

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase Bank Rate by 0.25% to 1.25%. Three dissenters voting on the MPC all wanted to raise the rate by 0.5%.

The Bank expect growth to slow sharply in the near term and CPI inflation to average slightly over 10% at its peak in 2022 Q4. Conditional on the MPC’s forecasting for future energy prices, CPI inflation is projected to fall to a little above the 2% target in two years’ time, reflecting the unwinding of external factors, and to be well below this 2% target in three years due to a weakening UK environment.

The MPC judge the risks to their inflation forecasts to be skewed towards the higher end of the possible outcomes.

GDP is expected to fall by 0.3% in the second quarter as a whole, which is worse than forecasts in the May Report resulting in a more cautious approach to monetary policy.

CPI inflation is expected to be over 9% in the next few months and to rise to slightly above 11% in October. The increase in October reflects higher projected household energy prices following a prospective additional large increase in the Ofgem price cap.

It looks as if despite missing the 2% target by a massively wide margin the Bank is moving slowly in light of the economic headwinds in an attempt to not overshoot target in the medium term and throttle any recovery further down the line.

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