Latest Bank of England MPC meeting shows cautious short-term optimism with medium-term still indeterminate.
The latest Monetary Policy Committee (MPC) meeting of the Bank of England earlier this month showed more optimism about the short-term, but decided against a cut in interest rates, despite a 3-way split in votes.
Two members voted for an increase in interest rates, with one voting for a cut and the other members voting to maintain the status quo. However, in the post-meeting press conference, Governor Andrew Bailey said: "The question has changed now from how restrictive we need to be, [to] how long do we need to continue to maintain this stance, bearing in mind we have taken away that upward bias, to ensure inflation is sustainably at target.”
Domestic inflation pressures ease, international pressures heighten
The MPC felt that "risks from domestic price and wage pressures were now more evenly balanced,” a departure from the previous meeting’s assessment of a more upward curve. The two members who voted for a rate rise felt that the recent drop in the rate of inflation was "not necessarily informative about inflation persistence.”
The MPC’s statement also specifically mentioned that international inflationary pressures had been exacerbated by the conflict in the Middle East (whilst the Russia-Ukraine war shows no sign of coming to an end). This has had an affect on the medium-term inflation forecasts which have been revised 0.4% upwards: the two-year projection is now 2.3% (from 1.9%) and three-year estimate now 1.9% (from 1.5%).
Wages increase
The MPC has predicted a modest 0.3% increase in overall UK wages, despite the looming minimum wage increase of 9.8%. Established from new data from the ONS, the MPC also confirmed it’s uplifted ‘equilibrium unemployment’ rate in the medium-term from 4.25% to 4.5%. However, there was also an encouraging increase in projection of longer-term growth, now a more bullish 1.25%.
Whether the Bank’s factoring in the fiscal boost from the Autumn Budget (an additional 0.2% of GDP in 2025 and 0.3% in 2026) actually comes to fruition, depends on several key factors, one of which will be the timing of the General Election.
KPI’s MD Ryan Jardine said, “As a recruitment agency working across the UK, KPI is a good barometer of the economy at large, and our start to the year has been encouraging. We are generally optimistic about the short to medium-term and it’s important for businesses to understand that, as difficult as recruitment has been over the last couple of years, it’s likely to get even more challenging in the coming months as the market strengthens and demand for people increases.”
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