The Bank of England has warned of a larger than expected rise in inflation due to soaring energy costs and said the supply chain crisis was starting to hamper the economic recovery of Great Britain.
The Bank has warned that rising gas prices will push UK inflation above 4% by the end of the year.
He said consumer price index (CPI) inflation, currently at 3.2%, could stay above 4% in the second quarter of next year and could turn out “a little more. persistent “.
The Bank stuck to predictions that the surge in inflation would only be temporary, with all nine members of the Monetary Policy Committee (MPC) voting to keep rates unchanged at 0.1%.
But two policymakers, Deputy Governor Dave Ramsden and MPC external member Michael Saunders have called for a £ 35bn cut from the Bank’s £ 895bn quantitative easing (QE) program amid the inflation fears, although they were outnumbered 7-2.
The minutes of the latest decision revealed that the bank had lowered its growth expectations for the third quarter to 2.1%, from 2.9% previously forecast in August. This would represent a sharp drop from the 4.8% growth between April and June.
“This downward revision partly reflects the emergence of certain supply constraints on production,” the Bank said.
The minutes showed the MPC believed certain developments over the past month had “reinforced” the argument made in August that a tightening of monetary policy might be needed to meet the 2% inflation target. of the central bank.
However, in the latest report, the MPC added that “considerable uncertainties remain”.
He stressed that he would monitor developments in the labor market, including the impact of cost increases on businesses and employees.
The tariff decision comes as a sharp rise in wholesale gas prices is causing energy costs in the UK to skyrocket, plunging the sector into crisis mode and causing household and consumer bills to rise sharply. companies.
It adds even more inflationary misery to businesses, as supply chain issues and a shortage of truck drivers are already pushing up prices.
The Bank reported signs that “supply chain bottlenecks and labor shortages have started to affect production, especially in the manufacturing and construction sectors.”
The minutes follow the biggest jump in inflation on record, rising from 2% in July to 3.2%, according to recent official figures.
Financial markets have recently advanced expectations of a rate hike in the first quarter of next year due to strong CPI increases.
Despite the pressure to curb price increases, the bank is keeping away from any action that could destabilize the economic recovery as growth begins to weaken and ahead of the holiday program ending this month.
“The key questions include how the economy will adjust to the closure of the leave plan at the end of September; the extent, impact and duration of any change in unemployment, as well as the degree and persistence of any difficulty in matching available jobs with workers, ”the Bank said.
Economist Samuel Tombs of Pantheon Macroeconomics said the bank was “in a waiting situation until the impact of the end of the leave is known”.
“In our view, the outlook for a slowing labor market and difficult fiscal consolidation suggests that the MPC may wait until early 2023 to raise the bank rate again.”
ING’s James Smith added: “We believe there are too many headwinds on the growth outlook over the winter for that, or even a rate hike in February, to materialize.”