ITEM Club comments on the Inflation Report - MPC continues to expect a slow but sustained recovery to take hold in the UK over the coming months

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s Bank of England Inflation Report:
  • Forecast changes were predictable in light of recent events
  • The MPC continues to expect a slow but sustained recovery to take hold in the UK over the coming months
  • While supply side reform would be desirable, the MPC can still do more on monetary policy

“The upward revision to inflation was inevitable in light of recent developments like the increase in global food and oil prices and the ongoing weakening of sterling. This was always likely to be accompanied by a slight deterioration in growth prospects.
 
“But overall the MPC’s view remains broadly unchanged since November. Committee members continue to expect a slow but sustained recovery to take hold in the UK over the coming months, as their various policy initiatives, not least the Funding for Lending Scheme, begin to feed through to the real economy.
 
“The Governor clearly feels that we are reaching a point where monetary policy is becoming a blunt instrument and that supply side reform is the only thing that will cause an upturn in the UK’s fortunes. Whilst we would agree that supply side reform is important, we still feel there is more that the Bank can do to provide support from the monetary side. With that in mind, Mark Carney’s openness to new ideas is welcome as there is a clear need to debate the structure of UK monetary policy and to consider alternative options such as nominal GDP targeting, adopting numerical thresholds for inflation and unemployment or providing forward guidance.”