- A clear decision was made to cut interest rates
- Disinflation is showing ongoing progress
- At the margin, there has been an upward shift in inflation risks for 2-3 years time
- Inflation is being driven by one-off effects
- There is a risk of spillover into more persistent inflation
- Weaker labor market is acting as an offsetting factor
- If price and wage-setting behaviour is changing, we need to question if the recent pace of rate cuts is sustainable
- MPC overall believes UK monetary policy is still restrictive
Pill is clearly worried about inflation here. That’s not surprising given that the UK hasn’t managed to bring inflation down sustainably and still has one of the highest rates among the advanced countries. Wage growth might have been a big factor as the rate has been persistently higher than pre-covid levels.
He’s placing a great focus on wage-setting in his comments and that should put wage data at the top of the economic data to follow in the next months. The UK might have a de-anchoring problem on inflation and if the dreaded wage price spiral happens, a hard landing will be guaranteed.
This article was written by Giuseppe Dellamotta at investinglive.com.