“The Bank of England left interest rates unchanged in a widely expected 8-1 vote split. While the Bank did not push back against market expectations, it struck a balanced tone, highlighting the risks of higher inflation and a weakening economy. This will allow the MPC to retain flexibility in its policy response over the coming meetings amidst a highly uncertain backdrop.
“Data since the last meeting has been limited, but a raft of survey evidence suggests businesses are already feeling the impact of the energy shock and have begun to raise prices. The Bank will have to balance the growing upside risks to inflation against a weakening labour market and softer growth, both of which were downgraded in today’s updated projections.
“Recent tightening in financial conditions, gives the Bank more time to assess domestic inflation dynamics alongside developments in the Middle East. If energy supplies remain disrupted, the hawks will have a strong case to argue for a rate increase at the June meeting. Beyond that, it will be difficult to build consensus for further rate rises given the growing downside risks to the economy.”
