15th May 2022
Following its early-May meeting, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a 6-3 majority to increase the Bank Rate from 0.75% to 1.0%, with the three dissenting voices each calling for a bigger hike to 1.25%. This was the fourth successive meeting that the MPC had raised rates, taking them to their highest level since 2009.
Central banks around the world are currently scrambling to cope with surging inflation which began after the post-pandemic reopening of the global economy and has continued to spiral
following Russia’s invasion of Ukraine. Policymakers, however, are also trying to avoid sending their economies into a slump, which is creating a policy dilemma.
Speaking after the MPC announcement, BoE governor Andrew Bailey admitted, “We are in a very difficult position.” He added, “We’re walking a very narrow path between inflation on the one side, which is much higher than we want it to be, and on the other side very big external shocks which are causing a big loss of real income for people and businesses in this country.” Mr Bailey went on to warn of a “material deterioration in the outlook” for growth.
While falling short of predicting a technical recession – defined as the economy shrinking in two consecutive quarters – the BoE is now forecasting a decline in growth across the final three months of this year, with the economy then contracting by 0.25% in 2023. Minutes from the May MPC meeting though still point to further rate rises ‘in the coming months,’ with BoE Chief Economist Huw Pill recently warning “tightening still has further to run.”