BoE warns inflation will top previous forecast but takes no action

The Bank of England warned today soaring energy and raw materials prices will push inflation above its previous forecasts, but did nothing to rein in price rises.

Officials on Threadneedle Street upped their inflation forecasts for the year to above four per cent, over double its target.

Despite the higher than expected inflation clip, the Bank’s monetary policy committee (MPC) took no action to rein in price rises.

The Bank of England’s monetary policy committee (MPC) voted unanimously to hold rates at a record low 0.1 per cent.

In its monetary policy report released in August, the Bank said inflation will reach four per cent. It has undershot inflation forecasts throughout the pandemic.

According to the Office for National Statistics, inflation rose at its fastest rate on record last month, jumping to 3.2 per cent annually in August.

There were tremors of dissent toward the Bank’s bond buying programme, with MPC members Michael Saunders and Dave Ramsden voting against finishing the final leg of the Bank’s purchases of government bonds. 

The MPC voted 7-2 in favour of maintaining the final leg of government debt purchases, but voted unanimously to complete its corporate bond purchases, taking the Bank’s total stock of debt to £895bn.

The Old Lady acknowledged the UK economy’s rebound from the pandemic had strengthened the case for “some modest tightening of monetary policy.”

Further evidence showing the economy is on a positive trajectory had emerged since the MPC’s last meeting, it said.

“What we can probably gleam from this is that we will start to see the hawks voting for interest rate rises fairly soon, and potentially as soon as November,” said James Smith, developed markets economist at ING.

Its GDP forecasts were revised down one percentage point, driven by supply chain snarl ups and weakening demand.