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September 23, 2021BANK OF ENGLAND MONETARY POLICY The Bank of England Monetary announced that it would maintain the Bank Rate at 0.1% at its Monetary Policy Committee (MPC) meeting.
In addition, the MPC decided to maintain the stock of non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion and the target for the stock of government bond purchases at £875 billion. The total target stock of asset purchases will be maintained at £895 billion. The judgment of the MPC is that if the economy evolves as expected then some modest tightening of monetary policy over the forecast period will be necessary to meet inflation target in the medium term.
Since MPC's previous assessment in August, the pace of the global recovery has showed signs of slowing. Global inflationary pressures have been strong amid robust demand and supply constraints. There have been some signs that cost pressures may be more persistent and UK financial market indicators of inflations expectations have risen somewhat.
Q3 GDP expectations have been revised downward with surveys indicating backlogs of work, significant material and labour shortages, and below normal inventories. Service-oriented sectors have picked up but output remains well below pre-COVID levels.
The unemployment rate has declined to 4.6% and the number of furloughed jobs has continued to decline in the UK. Vacancies and indicators of recruitment difficulties have increased. Underlying pay growth is estimated to have picked up to above its pre-pandemic rate.
Twelve-month CPI inflation increased from 2.0% in July to 3.2% in August. Core inflation picked up to 3.1% in August, its highest rate since November 2011. Base effects (a larger change that results from comparing the current CPI index with an abnormally low period in the previous year) account for most of the increase, but global cost pressures continue to impact good prices. CPI inflation is expected to increase to above 4% in Q4 2021 from higher energy and goods prices. It was noted that, "The Committee's central expectation continues to be that current elevated global cost pressures will prove transitory". Given the large lag between monetary policy and inflation effects the MPC views it as appropriate to focus on medium-term prospects rather than temporary factors.
Source: Bank of England, Monetary Policy Summary
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