NS bank of england Today it is nervous about rising inflation as it acknowledged that rising gas prices and supply chain problems will add to the pressure.
The latest Monetary Policy Committee report said CPI inflation is now expected to be ‘slightly up’ at 4 per cent in the fourth quarter of the year.
While the surge is still expected to be ‘temporary’, it has warned that growth over the past month – including the energy crisis – has “strengthened”. Scene That action would be needed to return to the 2 percent target.
The committee said that this rate may remain above 4 per cent in the second quarter of next year.
Bank employees have also revised their expectations for recovery, with GDP still down 2.5 per cent from its pre-Covid levels in the third quarter of this year.
The MPC has kept interest rates at 0.1 per cent and the quantitative easing program at £895 billion.
The Bank of England now expects inflation to be above its August forecast (pictured) – rising by more than 4 percent this year and likely staying there until the second quarter of next year.
Bank of England Governor Andrew Bailey has insisted that inflation will moderate in the medium term despite growing concerns
Official data shows the CPI rate rose to 3.2 per cent in August, well above the bank’s target of 2 per cent.
The MPC said the downward revision on GDP ‘partly reflects the emergence of certain supply constraints on output’.
The report said developments in the past month “reinforce” the case made in August that some tightening of monetary policy is necessary to meet the central bank’s 2 per cent inflation target permanently in the medium term. It is possible.
After the reopening of the Covid-hit economy, the headline CPI rate rose to 3.2 per cent in August, the highest in nearly a decade.
However, the MPC said that ‘considerable uncertainties remain’.
“Against a backdrop of strong demand and supply constraints, global inflationary pressures remained strong and there were some indications that cost pressures may prove more persistent,” the minutes said.
Oil prices remained high and global shipping costs continued to rise. Bulk gas prices had increased significantly across Europe.’
The report said inflation would be “slightly higher than expected in the August report” at 4 per cent.
“About half of inflation above projected targets in the near term was expected to be attributable to an increase in energy price inflation,” the MPC said.
‘The estimated contribution of energy prices from October 2021 reflects the most recently announced increase in standard variable tariff caps on retail gas and electricity prices, along with a base effect.
“Since publication of the August report, spot and forward bulk gas prices had risen materially, against a backdrop of strong demand and some supply disruption.
‘This could represent a significant upside risk to the MPC’s inflation projection from April 2022, when Offgame next updated its retail energy price cap based on the relevant futures contracts, and was meant to last the second quarter of 2022. CPI inflation in the U.S. will remain slightly above 4 percent. Other similar.’
The bank stressed that it would monitor developments in the labor market, including the impact of cost increases on business and employees.
Nine members of the MPC voted unanimously in favor of keeping the rates at 0.1 percent.
The central bank will also continue with its £895 billion quantitative easing program after a seven to two vote is in favor.
Committee members Michael Saunders and Dave Ramsden voted calling for a cut of £860 billion.
Concerned by lawmakers over the energy crisis today, Business Secretary Kwasi Quarteng insists weather is the ‘single most important determinant’ of natural gas prices
Despite pressure to rein in rising prices, the bank is backing down on any action that destabilizes the economic recovery as growth begins to falter and ahead of the furlough plan that ends this month.
‘Key questions include how the economy will adjust to the closure of the furlough scheme at the end of September; The extent, effect and duration of any change in unemployment, as well as the degree and persistence of any difficulty matching available jobs with workers,’ the bank said.
Samuel Tombs, economist at Pantheon Macroeconomics, said the bank was “in a holding pattern until the impact of the furlough termination was known”.
‘In our view, the outlook for labor market creation and a difficult financial consolidation suggest that the MPC will be able to wait until early 2023 to raise the bank rate again.’
James Smith at ING said: ‘We think there’s going to be a winter growth outlook for this, or really the February rate hike to materialise.’
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