Governor Andrew Bailey said the MPC still thinks “interest rates are on a gradually declining path." But he noted economic uncertainty and said policymakers will watch evolving events closely.
In the meeting's minutes, the one vote for a cut noted disaggregated data pointing to inflation continuing to decline, and that Bank Rate "needed to account for policy transmission and the risks to supply capacity from a prolonged period of monetary restrictiveness."
GUIDANCE UNCHANGED
Guidance offered by the MPC was little changed on the previous month, with the policy statement saying a "gradual and careful" approach to further removal of policy restraint was appropriate.
There was an acknowledgement of two-sided risks to price pressures, with the Committee "likely to consider scenarios for the risks around medium-term inflation, building on its recent deliberations."
The MPC is focusing on risks from both a potential “greater or longer-lasting weakness in demand relative to supply in the economy, in part reflecting uncertainties globally and domestically, which could push down on inflationary pressures in the medium term”, and on the extent to which there could be more persistence in domestic wage and prices pressures. This latter could arise both from “more constrained supply relative to demand and from additional second-round effects related to the projected near-term increase in CPI inflation."
The MPC will review these broad risks as a part of its May policy round, alongside its baseline forecast.
INFLATION OUTLOOK
The MPC repeated that it would continue to monitor risks of inflation persistence closely and that policy would need to remain restrictive for sufficiently long until risks of a return to target had diminished.
The minutes noted that the MPC saw inflation rising to around 3.75% in Q3, due in part to higher global energy prices, and highlighted that services inflation was up, if at a slower speed than expected in February projections.
Twelve-month CPI inflation was slightly higher than expected in the February Report, the statement noted, adding that "domestic price and wage pressures are moderating, but remain somewhat elevated."
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