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PwC comments on Bank of England's MPC May meeting

05 May 2022

Barret Kupelian, senior economist at PwC, says,

“The MPC’s decision  to raise its Base rate by 25 basis points was widely expected given recent trends in the Consumer Price Index (CPI) which is currently running at 7% on a year-on-year basis. 

“On inflation, the Bank’s latest projections show that CPI inflation will peak at slightly over 10% in 2022 Q4, which would be the highest rate since 1982. The main driver of this is a further increase in the food prices as well as another uplift in the energy price cap for households in October. This is consistent with PwC analysis of the latest futures data where we expected a 30-40% uplift in the energy price cap later this year. 

“On growth, the Bank’s refreshed projections assume no net growth in GDP over the next two  to three years (see chart). This is a significant deterioration compared to the Bank’s forecasts pre the Russian invasion of Ukraine. The combination of high inflation and little to no growth signals that the UK has probably already entered stagflationary territory.

“Going forward, however, there are some important points to bear in mind. CPI inflation, even though high in the next few quarters, is expected to come down rapidly early next year as high energy prices fall out from the denominator. Also, the Bank assumes no further government action on energy prices, particularly for the most vulnerable. In the face of this latest report by the Bank of England, we think that this could be increasingly unlikely.


Source: PwC analysis of Bank of England data


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