So why has the Bank of England cut rates when inflation is well above its target of 2% and seems set to remain there? <\/p>\n
This vexed question is why the proceedings of the Bank’s nine member Monetary Policy Committee were so close and even involved an unprecedented second vote.<\/p>\n
The bottom line is that in the medium term the Bank sees the jobs market as exerting less upward pressure on inflation, because of a fall in the number of job vacancies and an increase in the jobless rate. <\/p>\n
But Bank governor Andrew Bailey and his team will have some explaining to do.<\/p>\n
Inflation remains high, and the very visible food price inflation figures look set to go up over the remainder of the year. <\/p>\n
So the ripples of inflation remain and there are risks around an expected further cut in interest rates in November.<\/p>\n
It is notable that both deputy governor Clare Lombardelli and chief economist Huw Pill voted to hold rates, against the judgement of the governor. <\/p>\n
Mr Bailey acknowledged to me that there was now more uncertainty about the pace of cuts, which it had previously been assumed would continue at once per quarter into next year.<\/p>\n
The bigger question is why this series of cuts – five over the past year – has not boosted the economy more dramatically. <\/p>\n
The Bank expects second quarter GDP growth, which will be published by the Office for National Statistics next week, to be just 0.1%.<\/p>\n
However, thereafter it does predict that in the third quarter, economic growth will pick up to 0.3%, partly on the back of the prime minister’s trade deal with the US boosting what had been flagging exports. <\/p>\n
Obviously, the global backdrop has weighed down on the economy. <\/p>\n
The Bank points to the 24% drop in UK car exports to the US in May. That should now reverse.<\/p>\n
The notable economic factor has been the very high rate of savings in the economy, remaining at pandemic double digit levels as a proportion of the economy. <\/p>\n
Essentially, although pay has been rising faster than inflation, consumers have not felt confident enough to increase spending. This is partly an expected result of what were high interest rates. <\/p>\n
But the general negative vibe, not helped by what was a rather downbeat drumbeat from government last year, does appear to have held consumers back.<\/p>\n
If spending reverts to normal, and savings rates decline, then the Bank predicts a notable improvement in economic growth, eventually.<\/p>\n
But the lingering suspicion that inflation has not quite been defeated, which will be seen in upcoming food prices, remains. <\/p>\n
And the Bank clearly is picking up the impact of some government policies, from the rise in National Insurance for employers, and the national living wage.<\/p>\n","protected":false},"excerpt":{"rendered":"So why has the Bank of England cut rates when inflation is well above its target of 2%…\n","protected":false},"author":3,"featured_media":126616,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[51,50,52],"class_list":{"0":"post-126615","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news","8":"tag-headlines","9":"tag-news","10":"tag-top-stories"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114988104039506877","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/126615","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=126615"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/126615\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/126616"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=126615"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=126615"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=126615"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}