The Bank of
England (BoE) announced on Thursday its Monetary Policy Committee (MPC) voted
by a majority of 8-1 to lower the Bank Rate from 5.00 per cent to
4.75 per cent at its November meeting. Meanwhile, one MPC member preferred to leave
the benchmark rate unchanged. The outcome matched markets’ expectations.
In its policy statement,
the BoE notes:
- Today’s cut
reflects the continued progress in disinflation;
- There has
been continued progress in disinflation, particularly as previous external
shocks have abated, although remaining domestic inflationary pressures are
resolving more slowly;
- CPI inflation
is expected to increase to around 2.5% by the end of the year as weakness in
energy prices falls out of the annual comparison;
- Headline GDP
growth is expected to fall back to its recent underlying pace of around 0.25%
per quarter over the second half of this year;
- MPC judges
that the labour market continues to loosen, although it appears relatively
tight by historical standards;
- Monetary
policy has been guided by the need to squeeze remaining inflationary pressures
out of the economy to achieve the 2% target both in a timely manner and on a
lasting basis;
- Committee’s
deliberations have been supported by the consideration of three cases that
could impact the evolution of inflation persistence;
- In the first
case, most of the remaining persistence in inflation may dissipate quickly as
pay and price-setting dynamics continue to normalise following the unwinding of
the global shocks that drove up inflation. In the second
case, a period of economic slack may be required to normalise these dynamics
fully. In the third
case, some inflationary persistence may also reflect structural shifts in wage
and price-setting behaviour;
- Each case
would have different implications for how quickly the restrictiveness of monetary
policy could be withdrawn;
- CPI inflation
is projected to fall back to around the 2% target in the medium term;
- Measures
announced in Autumn Budget 2024 are provisionally expected to boost GDP by
around 0.75% at their peak in a year’s time;
- Budget is
provisionally expected to boost CPI inflation by just under 0.5 of a percentage
point at the peak;
- There remains
significant uncertainty around the outlook for the labour market. Data are
difficult to interpret and wage growth has been more elevated than usual
relationships would predict;
- A gradual approach to removing policy restraint remains
appropriate;
- Monetary
policy will need to continue to remain restrictive for sufficiently long until
the risks to inflation returning sustainably to the 2% target;
- Committee
continues to monitor closely the risks of inflation persistence and will decide
the appropriate degree of monetary policy restrictiveness at each meeting