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PwC comments on MPC February meeting

03 Feb 2022

Barret Kupelian, senior economist at PwC UK, says

“Today the Bank of England’s Monetary Policy Committee (MPC) announced its decision to increase the Bank Rate to 0.5% and to start to reduce its existing programme of asset purchase programme unchanged. 

“In its latest projections, the MPC expects inflation to peak at 7.1% in the second quarter of this year. This is the highest quarterly rate recorded in its post-independence history and the highest rate since the ERM crisis in the early 1990s. [see chart] 

“The Bank’s forecasts highlight that high inflation will be a more significant headwind into UK growth than initially anticipated, with its forecast for GDP growth downgraded from 5% to 3.75% for this year. This is slower than what the IMF’s January forecasts for the Eurozone for this year. On its own, slower growth is expected to moderate demand-side inflation. On a more positive note, the Bank expects unemployment rates to continue to remain low.

“Whereas the impact on households is well-known, businesses are now embroiled in a very difficult balancing act between limiting rising input costs to their customers, maintaining market share in a less favourable growth environment and, at the same time, maintaining profit margins. 

“The Bank’s policy action today influences medium-term, rather than short-term, inflation. We expect the Monetary Policy Committee to continue to monitor whether higher input and wage costs pass-through into higher prices. If this effect spreads from manufacturing and construction firms which we are currently seeing into the wider economy, it could presage faster action by the Bank.” 

 

 

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David Bowden

David Bowden

Manager, Corporate Affairs, PwC United Kingdom

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