In the key passage from the monetary policy report on Thursday, the Bank said it would continue to monitor closely “indicators of persistent inflationary pressures”, including job vacancies, labour shortages, wage growth and price increases in the services sector. The Bank believes that in two years’ time inflation will be 1% – comfortably below target. It is aware that only about one-third of the impact of previous rate rises has so far been felt, which is why – despite the biggest upgrade to its growth forecasts since independence in 1997 – growth for the next three years remains sluggish. Judging by its latest monetary policy report, the MPC now wants to take a break from rate rises so that it can see how things develop.
Is the tightening cycle that began in December 2021 now over? Is the Bank going to follow the example of the US Federal Reserve and signal a pause in rate hikes? Would it warn that the peak was still some way off?
What businesses and the 1.3 million people coming off fixed rate mortgage deals by the end of the year want to know is what happens next. With inflation at 10.1% – five times its official 2% target – it would have been a real surprise had the MPC voted for anything other than a quarter-point rise. In truth, the increase in interest rates to 4.5% was always nailed on.
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