The Bank of England’s Monetary Policy Committee MPC) meets this week – but despite concerns
over inflation, analysts say a rate increase is unlikely.
With UK inflation currently riding higher than the Bank’s 2 per cent target, it seems that there may
be some pressure to increase the base rate. However, most members of the MPC look likely to
hold to their view that inflation will drop below target early next year. Economists argue that a rate
increase now would be too late to have any real impact on the current inflationary pressures, and
might even seem like a panic response.
In a recent poll by news agency Reuters, none of the 62 leading economists who were questioned
expected rates to rise this month. Barclays economist Simon Hayes stated that he expects the
results of this week’s meeting of the MPC to be “a non-event”. A rate hike in January would have
considerable impact, he added:
“No amount of window dressing could control the market response. It would cause a huge amount
of market volatility.”
The minutes of last month’s policy meeting suggested that some members of the Committee were
getting more concerned about inflationary pressures, and this is certain to be a topic of considerable
discussion at the meeting this Wednesday and Thursday.
Vicky Redwood of Capital Economics said, “The big question is whether the MPC – assuming that it
still believes that the upward pressures on inflation will be only temporary – has the nerve to stick to
its guns.”
