Inflation risks too great for MPC rate cut this week
Simon Ward
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This week's MPC rate decision is a particularly difficult call. Activity indicators are at levels historically consistent with a quarter- or even half-point Bank rate cut. The near-term inflation outlook remains troubling, however, with the May Inflation Report likely to show a larger and more prolonged overshoot than projected in February. (Commentators often seem to forget that the Committee’s remit is to achieve 2% inflation “at all times”.) Meanwhile, financial markets have calmed significantly and MPC members hope the new Special Liquidity Scheme will contribute to further improvement.
Weighing up these factors, my MPC-ometer suggests a 6-3 vote for unchanged rates this week. A cut is certainly possible but would be dangerous given current inflationary risks. For comparison, the model forecast is close to the 5-4 vote for no change by the Sunday Times Shadow MPC.
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