ITEM Club comments on today’s MPC decision

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s MPC decision:

  • This decision could have gone either way; we wouldn’t be surprised to see the vote more split than before
  • The MPC must remain vigilant and be willing to act quickly, particularly if the Eurozone crisis worsens

“This decision could really have gone either way. The economic data has been very mixed since the last meeting, providing no clear signal in either direction, but the escalation of the problems in the Eurozone may have convinced some members to take a more proactive stance. We wouldn’t be surprised if the minutes show the vote is more split than it was in May, particularly given that Adam Posen has hinted that his previous change of stance would probably only be temporary.
 
“In the minutes of previous meetings, the MPC have hinted that high inflation rates were discouraging them from offering any further stimulus. However, this seems to be much less of an issue now, with inflation having slowed sharply in April and the business surveys reporting much weaker inflationary pressures for both input costs and output prices. As such, we would expect this argument to be holding less weight on the Committee and the bias to be moving back towards further easing.