Cascade Commentary

Bank Rate maintained at 0.1% at the June 2021 Monetary Policy Committee Meeting

June 2021

By Georgia Boddy

At its meeting ending on 22nd June, the Bank of England’s MPC voted unanimously to maintain the Bank Rate at 0.1% and set monetary policy to meet the 2% inflation target, and in a way that helps to ‘sustain growth and employment’. Additionally, the Committee voted to maintain the stock of sterling non-financial investment-grade corporate bond purchases at £20 billion and voted by a majority of 8-1 for the Bank of England to continue with the existing programme of UK government bond purchases.

CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3% for a temporary period.

Following the meeting, Andrew Bailey has since said that while inflation would continue to accelerate this year, it is likely to be temporary and he warned against an ‘over-reaction’ to rising inflation after Andy Haldane (former Chief Economist at the Bank of England) said it could hit nearly 4%.

Mr Bailey specifically stated that he felt the reasons for why the pick-up inflation was unlikely to last were “well founded” in response to Mr Haldane’s claim that “overall, inflation expectations ad monetary policy credibility feels more fragile at present than at any time since inflation-targeting was introduced in 1992”.

In the MPC’s May Monetary Policy Report, UK GDP was expected to recover strongly over 2021 to pre-Covid-19 levels and CPI inflation was projected to rise temporarily above the 2% target. Since May, GDP growth has been stronger than anticipated and global price pressures have picked up further – reflecting strong demand for goods.

The number of furloughed jobs has declined faster than expected as demand has recovered and overall, there is judged to be ‘spare capacity’ in aggregate in the economy at present.  That being said, vacancies have risen above pre-Covid levels and there are increasing signs of recruitment difficulties for some businesses, and in some locations and sectors.

The MPC concluded its meeting by stating they will continue to monitor the situation closely and take whatever action is necessary to achieve its remit. They do not intend to tighten monetary policy at least until there is ‘clear evidence’ that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

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