THE Bank of England’s Monetary Policy Committee (MPC), at its meeting ending on 2nd August 2023, voted by a majority of 6-3 to increase the Bank Rate by 0.25 percentage points, to 5.25%.
Two members preferred to increase the Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank Rate at 5%.
The Committee’s updated projections for activity and inflation ‘are conditioned on a market-implied path for a Bank Rate that rises to a peak of just over 6% and averages just under 5% over the three-year forecast period’.
The Bank statement added: ‘The labour market remains tight but there are some indications that it is loosening.
‘The LFS unemployment rate rose to 4.0% in the three months to May, somewhat higher than expected in the May Report, and the vacancies to unemployment ratio has continued to fall, although the latter still remains above historical averages.’
It continued: ‘Annual private sector regular pay growth increased to 7.7% in the three months to May, materially above expectations at the time of the May Report, and three-month on three-month growth in this measure of pay has picked up further.
‘Earnings growth is nevertheless expected to decline in coming quarters, to around 6% by the end of this year, although there is uncertainty around this near-term outlook.
‘Twelve-month CPI inflation fell from 8.7% in May to 7.9% in June, lower than expected at the time of the Committee’s previous meeting.’
The statement continued: ‘CPI inflation remains well above the 2% target. It is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term.’
The statement added: ‘The Committee continues to judge that risks around the modal inflation forecast are skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge. Mean CPI inflation, which incorporates these risks, is 2.0% and 1.9% at the two and three-year horizons respectively.’
The statement adds: ‘The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances.’
It concludes: ‘Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.
‘At this meeting, the Committee voted to increase Bank Rate by 0.25 percentage points, to 5.25%.’
