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PwC comments on MPC June meeting

16 Jun 2022

Barret Kupelian, senior economist at PwC, says,

“The Bank of England’s rate setting committee raised rates by an additional 25 basis points, resisting the pressure of their colleagues in the US which raised the equivalent target rate at a much more rapid 75 basis points. The latest move takes the Bank’s policy rate to a 13 year high.

“Three members on the Monetary Policy Committee (MPC) voted for a faster rate of increase by 50 basis points. Overall, this view didn’t prevail across the Committee. However, the hawks did manage to secure a much more strongly-worded policy summary statement with the standout point for the need to act  “forcefully” in response to future indications of persistent inflationary pressures. 

“There are a few factors that could influence this view: 

  • First, CPI being out of kilter compared to other large advanced economies. The MPC pointed out that UK core inflation (i.e. adjusting for energy and food price inflation) is now higher than in the Eurozone and the US (see chart). 

  • Second, the recent depreciation of sterling against the US Dollar, which could push cost inflation even higher. 

  • Third, strong pay growth, with the latest summary of business conditions released today by the Bank showing that a growing proportion of businesses thought that they would have to increase pay further to retain staff. 

“Going forward, if these indicators point to additional inflationary pressures developing and spreading across the economy, the MPC will be forced to act fast.”

Source: Refinitiv

 

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