At its meeting ending on 2 November 2021, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to maintain Bank Rate at 0.1%.
Projections by the Central Bank gives a market-implied path for Bank Rate that rises to around 1% by the end of 2022, with UK GDP growth expected to be relatively subdued.
The unemployment rate fell to 4.5% in the three months to August, while HMRC’s payroll data has continued to rise strongly. There have continued to be few signs of increases in redundancies and the stock of vacancies has increased further, as have indicators of recruitment difficulties.
Taken together, while there is considerable uncertainty, initial indicators suggest that unemployment will rise slightly in 2021 Q4. Bank staff expect inflation to rise to just under 4% in October, accounted for predominantly by the impact on utility bills of past strength in wholesale gas prices and is now expected to peak at around 5% in April 2022, materially higher than expected in the August Report.
The Committee has judged that some modest tightening of monetary policy over the forecast period is likely to be necessary to meet the 2% inflation target sustainably in the medium term. The latest developments, set alongside the Committee’s updated projections, reinforce this view.
Nevertheless, near-term uncertainties remain, especially around the outlook for the labour market, and the extent to which domestic cost and price pressures persist into the medium term.
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