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PwC comments on MPC August 2022 meeting

04 Aug 2022

Barret Kupelian, senior economist at PwC, says:

“Today the Bank of England’s Monetary Policy Committee (MPC) increased rates by 50 basis points which was consistent with expectations. The MPC’s report presented ‘the good, the bad and the ugly’ in terms of the economic outlook, with the tone  very much resembling the mood of the early 1980s and the economy showing clear signs of stagflation. 

“Starting off with the good news, the Bank expects post-COVID tradable good price inflation to subside, as supply chains adjust to post-COVID normality and as consumers rebalance and cut back on their goods and services spending. We are already seeing the effects of this in the UK, with used car prices, for example, stabilising and with suppliers hoarding less raw materials.

“The bad news is that, in its central scenario, the MPC expects the economy to enter recession in the fourth quarter of this year and this could last until 2023. The word ‘recession’ is used nine times in the report. This corroborates our own recession probability tracker modeling, which currently puts the odds of output contracting for two consecutive quarters in the next 12 months at 50% and rising. 

“The ugly news is that inflation will be heading from single  to double digit territory, reaching 13% in the fourth quarter of this year. All households will be inevitably affected by this increase with those on the lower end of the income scale hurt more. We expect more support will be announced in the coming months for the more vulnerable segments of society.” 

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David Bowden

David Bowden

Manager, Corporate Affairs, PwC United Kingdom

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