Despite a faction of the committee advocating for a rate increase to 5.5 per cent, the prevailing consensus was to hold the rate steady. This decision aligns with the MPC's projections from its November Monetary Policy Report, which anticipated GDP remaining flat in the first half of the forecast period. The report highlighted weak potential supply and increasing economic slack as contributing factors, the Bank of England’s MPC said in a press release.
Inflation, a key indicator for monetary policy, showed signs of returning to the target of 2 per cent by the end of 2025. However, the Committee noted that risks to this projection lean towards the higher side, indicating a possible inflation rate of 2.2 per cent and 1.9 per cent over two and three-year horizons, respectively.
The international financial landscape has seen significant changes since the MPC's previous meeting. Advanced-economy government bond yields have declined, particularly at shorter horizons, and there's been a rise in risky asset prices. Additionally, global GDP growth has slightly outperformed expectations set in the November report.
The UK's GDP performance remained flat in the third quarter of 2023, aligning with projections. However, a 0.3 per cent decline was observed in October. Employment growth appears to have softened, and indicators suggest some loosening in the labour market.
In light of the Autumn Statement, fiscal measures are expected to boost GDP by approximately 0.25 per cent over the coming years. This is likely to increase potential supply, thereby moderating the impact on inflationary pressures.
Wage growth has also been a central focus, with private sector regular Average Weekly Earnings (AWE) growth slowing to 7.3 per cent in the three months to October. This aligns AWE more closely with other pay growth indicators, which have fallen below 7 per cent. Nevertheless, the outlook for wage growth remains uncertain, particularly considering the recent increase in the National Living Wage.
CPI inflation experienced a significant drop from 6.7 per cent in September to 4.6 per cent in October, with a notable decline in services price inflation. However, the MPC cautions that some of these movements may not accurately reflect long-term trends, the release added.
Fibre2Fashion News Desk (KD)