In the MPC’s November Monetary Policy Report projections, conditioned on the elevated path of market interest rates at that time, the UK economy was expected to be in recession for a prolonged period and CPI inflation was expected to remain very high in the near term. Inflation was expected to fall sharply from mid-2023, to some way below the 2 per cent target in years two and three of the projection. This reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation were judged to be to the upside, the MPC said in a statement.
The Bank of England’s Monetary Policy Committee (MPC) has increased the bank rate by 0.5 percentage points, to 3.5 per cent. Bank staff now expects UK GDP to decline by 0.1 per cent in the fourth quarter of 2022, 0.2 percentage points stronger than expected in the November Report. Surveys of investment intentions have also weakened further.
Most indicators of global supply chain bottlenecks have eased, but global inflationary pressures remain elevated. Twelve-month CPI inflation of the country fell from 11.1 per cent in October to 10.7 per cent in November. CPI inflation is expected to continue to fall gradually over the first quarter of 2023, as earlier increases in energy and other goods prices drop out of the annual comparison.
Overall, Bank staff estimates that the level of GDP by 0.4 per cent at a one-year horizon, leave it broadly unchanged at a two-year horizon, but reduce the level of GDP by 0.5 per cent in three years’ time, relative to what was assumed in the November Report. The overall impact on the CPI inflation projection at all these horizons is estimated to be small.
The majority of the Committee judges that, should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in bank rate may be required for a sustainable return of inflation to target.
Fibre2Fashion News Desk (KD)