Dissecting the MPC’s UK inflation fixation
High inflation in the UK and concerns about the effect of a tight jobs market on wages will likely push the MPC to raise rates to 1.25% by the end of 2022. But considering the key role played by global energy prices in pushing up inflation, we think this could turn out to be a damaging overreaction.
What you will learn:
- The BoE’s latest growth forecast far from signals an unsustainable boom.
- In reconciling these observations with the committee’s hawkishness, a lack of faith in its own inflation forecast is one possibility.
- Bank Rate sitting well below the MPC’s estimate of the neutral rate could be another motivation.
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