- Prior 3.75%
- Bank rate vote 0-6-3 vs 0-7-2 expected (Greene, Pill, Mann voted for 25 bps rate hike)
- The impact of the energy shock on the UK economy remains uncertain
- Monetary policy cannot influence energy prices
- Policy stance required to achieve 2% inflation target sustainably depends on the scale and duration of the shock
- The risk of material second-round effects is greater the longer higher energy prices persist
- But for now, there is little evidence so far to suggest such effects especially as indicated by recent data
- The risks to the inflation outlook are tilted to the upside relative to the central projection
- But there remains scope for the outlook to change materially as events in the Middle East unfold
- Appropriate to maintain the bank rate at this meeting
- Stands ready to act as necessary to ensure that inflation remains on track to meet the 2% target in the medium-term
- Full statement
Looking to the discussion statement from the meeting:
- All members agreed that risks to the paths of energy prices remained skewed to the upside
- All members acknowledged that there had been sustained disinflation pre-conflict
- But members took varying degrees of reassurance from what this past disinflation implied for the inflation outlook
- For most members, past disinflation was consistent with a margin of economic slack
- For other members, this past disinflation was not informative about future inflation
- Committee agreed that there had been little evidence of material second-round effects so far
- Will continue to monitor forward-looking data to allow timely assessments of the inflation outlook
- Taking everything into account, the risk of strong inflationary pressures was greater than the risk of weak inflationary pressures
- Members noted that monetary policy could need to react before the risks around inflation persistence materialised conclusively
On the dissent by Greene, Pill, and Mann, it was noted that:
“These members were less reassured on the underlying disinflationary process, were concerned that second-round effects could be material, and thought it relevant that inflation had exceeded the 2% target for more than five years. For these members, uncertainty about how the conflict would evolve remained high, and so a risk management strategy was appropriate. They believed that a proactive increase in Bank Rate would reduce the probability of second-round effects setting in. Further, research found that setting policy as if there were stronger second-round effects and course correcting if needed, would prove to be less costly than vice versa.”
The dissenters are not really all too surprising. Greene and Pill were more or less lock-ins to dissent today and Mann had been a hawk for the most part besides some flip flopping in recent meetings. So, a 6-3 vote is not all too different from a 7-2 vote in this regard.
Overall, the statement just reaffirms that they are keeping the door open to raise interest rates again if need be. However, there is not much of a sense of urgency to act now or even in September. That unless the data changes the outlook and forces a reconsideration.
The statement basically says that there needs to be some evidence of second round effects or more persistent inflation pressures to justify a broader shift among the committee. Otherwise, they will wait and see on what the data has to say before really considering anything else.
This article was written by Justin Low at investinglive.com.