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September 22, 2022BANK OF ENGLAND MONETARY POLICY The meeting held on September 21, 2022, resulted in a vote to increase the Bank Rate by 0.5 percentage points to 2.25%. The majority preferred to raise the rate by 0.5%, while three voted to raise it by 0.75% and one member favoured an increase of 0.25%.
UK energy prices have been volatile, however, uncertainty slowly declined following the announcement of support measures such as Energy Price Guarantee. With the Energy Price Guarantee, projected inflation is expected to be lower than the August report at just under 11% in October. CPI inflation has slightly fallen in August to 9.9% from July’s 10.1%. The goal of monetary policy is to ensure that CPI inflation eventually returns to 2% target in the medium term as well as ensure that long term expectations are stable at 2% target.
After the August Monetary Policy Report projected a 0.2% fall in UK GDP, the second quarter of 2022 has brought only a 0.1% decline. Household consumption and government expenditure have declined 0.1% and 3.9% respectively. Business investment had risen by 3.8%. The bank staff expect a decrease in GDP by 0.1% in the third quarter, which is below the August projection for growth of 0.4%. The decline of consumer disposable income led to a decrease in retail sales volumes of 1.6% in August.
The labour market has further tightened over the summer even as there were some signs showing demand for labour weakening. Service prices and nominal wages have significantly increased, while core goods price inflation was less than expected. Employment growth has slowed to 0.1%. The slow employment growth might be reflection of recruitment difficulties and slowing manufacturing sector. The unemployment rate based on the Labour Force Survey (LFS) has fallen to 3.6% in the three months till July. The level of inactivity being higher than expected by the August report. LFS survey responses showed that the flow out of inactivity is still strong, but the flow into inactivity rose also. There was a significant increase in adults reaching age 65 and working age individuals who did not wish to have a job to explain the flow out of work activity.
An updated Monetary Policy Report will be provided at the November 3rd meeting.
Source: Bank of England, Monetary Policy Summary, Monetary Policy Report - August 2022, Monetary Policy Summary, September 2022
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