Bank rate raised again
Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an
indication of how some key issues could impact in the future. Here's the key headlines ...
Following a meeting held in mid-March, the BoE’s nine-member Monetary Policy Committee (MPC) voted by an 8-1 majority to raise Bank Rate from 0.5% to 0.75%. This was the third meeting in a row that the MPChad signalled a tightening of monetary policy, taking the Bank’s main interest rate back to its pre-pandemic level.
Policymakers cited a strong labour market and continuing signs of ‘robust domestic cost and price pressures’ as key reasons for the
hike. Minutes to the meeting also noted that Russia’s invasion of Ukraine had led to ‘further large increases in energy and other
commodity prices including food prices.’ As a result, the BoE now expects inflation to reach ‘around 8% in April,’ almost a full percentage
point higher than it forecast in February and four times its 2% target figure.
Data subsequently released by the Office for National Statistics (ONS), however, showed that price rises continue to exceed analysts’ expectations. In the 12 months to February, the rate of inflation as measured by the Consumer Prices Index, surged to a 30-year
high of 6.2%. This was significantly up on the previous month’s rate of 5.5%, and 0.3% higher than the median forecast in a Reuters
poll of economists.
OBR downgrades growth forecast
The Office for Budget Responsibility (OBR) has downgraded its forecast for UK economic growth over the next two years amid an unprecedented squeeze on household finances.
Unemployment below pre-pandemic rate
The latest set of labour market statistics published by ONS revealed a further fall in the rate of unemployment, although real pay
growth continues to lag the spiralling cost of living.
In the three months to January, the unemployment rate fell to 3.9%, down from 4.1% across the previous three-month period. This was the lowest level since the three months to January 2020 and took the jobless rate back below its pre-pandemic level.
Retail sales decline
Official retail sales figures have revealed a drop in sales volumes during February while survey evidence suggests sales remained disappointing in March. ONS data showed that total retail sales volumes unexpectedly declined by 0.3% in February compared to the previous month.
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