Bank of England Policy Review

August 5, 2021

The Bank of England’s Monetary Policy Committee again voted unanimously to leave its Bank Rate unchanged at 0.10%. Officials however concede that the recent acceleration of inflation has exceeded their expectations by a significant margin, and they now foresee the 12-month rate of CPI increase to hit 4.0% later this year. Moreover, officials are somewhat mixed in their interpretation of the significance of inflation’s rebound:

Some members of the Committee judge that, although considerable progress has been made in achieving the conditions of that forward guidance, the conditions are not yet met fully. The other members judge that the conditions of the guidance have been met fully, but note that the guidance made clear that these have only ever been necessary not sufficient conditions for any future tightening in monetary policy.

The Bank of England vote on the size of quantitative stimulus split 8-1, and there was agreement that “some modest tightening over the forecast period” would be appropriate. The base rate is expected to rise to 0.2% by late next year, 0.40% in 4Q 2023, and 0.50% a year later. Interest rates are likely to rise before quantitative stimulus tapers.

This week’s monetary policy review was accompanied by the latest quarterly Monetary Policy Report. The inflation outlook continues to espouse the view that price pressure is mostly transitory and that the 2% target will be restored within the forecast horizon.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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