BoE ups UK bank rate by 0.25 pp to 5.25% to meet 2% inflation target

Bank staff expect a similar growth rate in the near term, reflecting more resilient household income and retail sales volumes, and most business surveys over recent months. However, some more recent indicators had shown signs of weakening, the bank said in a note.

The balance in the economic outlook between the impact of higher rates weighing on consumer spending and business investment, against the upside impact on incomes from subsiding energy and food prices suggested modestly positive underlying output growth for the second half of the year.

There were some signs that the labour market was loosening, although it remained tight in absolute terms. The Labour Force Survey unemployment rate had risen to 4 per cent in the three months to May, the vacancies to unemployment ratio had continued to decline, and recruitment difficulties appeared to be easing somewhat.

Wage growth was expected to remain strong in the near term, with the risk that there could be further upside surprises.

Elevated goods price inflation continued to be broad-based across products, but slowing producer price inflation suggested that it could ease significantly towards the end of this year.

Twelve-month consumer price index (CPI)-based inflation had fallen from 8.7 per cent in May to 7.9 per cent in June, lower than expected at the time of the committee’s previous meeting. Within this, core goods and services CPI inflation had both been lower than expected.

CPI inflation is expected to fall significantly further, to around 5 per cent by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation.

An increasing degree of economic slack was expected to emerge after the middle of next year and the unemployment rate is projected to rise to just under 5 per cent by the third quarter of 2026.

ALCHEMPro News Desk (DS)