National Institute of Economic and Social Research

How worried is the MPC about the risk of ‘sticky’ inflation?

Following this week’s decision by the Bank of England to raise Bank Rate to 4 per cent, our latest blog from David Aikman and @JamesSmithNIESR digs into the November Monetary Policy Report to examine what it reveals about the MPC's stance on 'sticky' inflation.

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The Bank of England today raised interest rates by 25 basis points to 4%, its first increase in more than three years. Whilst the move is a necessary step in response to renewed inflationary pressures, it's our assessment that it still leaves them behind the curve.

Next week we'll be releasing our latest Economic Outlook, which will discuss this and other issues affecting the UK economy, in more depth.

Will the MPC raise interest rates tomorrow? Our Monetary Policy Dashboard suggests the case for a shift is mounting and we expect there to be a rise in Bank Rate by 25 basis points to 4.00%.

However, will this be enough to contain second-round effects and anchor expectations? Our Autumn Economic Outlook, released next week, will explore this question in more depth.

Explore the dashboard here: hubs.la/Q04DdQD30

How is the UK’s deficit reduction plan (actually) likely to proceed?  In his blog this week David uses historic records of borrowing forecasts against out-turns to assess how fiscal plans are likely to be revised:

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Our response to today's Budget.

This was a Budget designed to buy some breathing space, but it is also a Budget that is betting on future good fortune. Deferring major fiscal decisions until the 2027 Spending Review is not a credible fiscal strategy.
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