Today the Bank of England’s Monetary Policy Committee (MPC) met for the sixth time this year. The meeting acted as a floor for economic discussion leading to an evident increase in Bank Rate.
It is no surprise, that in August of 2022 the risks surrounding the policy’s projection were incredibly high. This falling as a result of the large increase in wholesale gas prices since May. Alongside the consequent impacts on real incomes for UK households and on CPI inflation. September’s policy sets to acknowledge this and improve the current climate.
The Monetary Policy & Interest Rates
The MPC uphold that the inflation target applies at all times, highlighting the priority of price stability in the UKs stated monetary policy.The policy emphasises that there will be periods when inflation will stray from the target. This is the result of inevitable shocks and disturbances. However, the Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term.
There have been further signs since the August Report that the domestically generated inflation in the UK is continuing to strengthen. With the Government’s Energy Price Guarantee predicted to continually lower and enhance the expected peak of CPI inflation. This guarantee will reduce inflation in the near term and also provide a less weak rate of household spending in comparison to the August reports findings.
In view of the above considerations, the MPC voted to increase the current Bank Interest Rate by 0.5% to 2.25%.
The Committee further voted to reduce the stock of purchased UK Government bonds. These being financed by the issuance of central bank reserves, are set to be reduced by £80 billion over the next twelve months to a total of £758 billion. Thus, falling in line with the set strategy in the minutes from the MPC’s meeting in August.
The MPC will continue to monitor the country’s financial state. And as a result of this, will take the actions necessary to return inflation to the 2% target. The Committee continues to decide and consider the appropriate level of Bank Rate at each meeting. Implementing this each time they reconvene and ensuring constant assessment of the economic outlook and inflationary pressures. The continual monitoring of such variables will create the best policy to combat this. This rise will eventually lead to an economic boom and as investors, persisting through these times will prove worthwhile in the long run. This is subsequently a short-term issue that, when following this policy will alleviate.
The Bank of England will meet again on November 3rd to discuss the effects of its September policy. The UK’s climate will affect this greatly and so, is something to keep up to date with. Contact the LPC team for any assistance concerning today’s news.
For further info visit the Bank of England Website.