The Monetary Policy Committee (MPC) will meet today to determine whether the Bank of England Base Rate will rise, fall, or remain the same.
After inflation remained at the Government-set target of two percent for consecutive months, the MPC cut the Base Rate from 5.25 percent to 5 percent on August 1, the first rate reduction in four years.
However, the downward trend has since reversed, with inflation rising to 2.2 percent in July and remaining unchanged in August, according to the Office for National Statistics.
The Consumer Price Index (CPI), a key metric for MPC decisions, has left analysts less optimistic about further base rate cuts today, as Governor Andrew Bailey has frequently cited “sustained” inflation as a significant factor in policy decisions.
Rachel Winter, partner at Killik & Co said: “While the headline rate of inflation has stayed the same, the Bank of England will be disappointed by the higher core inflation figure. Core inflation excludes the traditionally volatile components of food and energy, and the recent uptick suggests there is still too much demand in the UK economy. This could put a September interest rate cut out of reach, and it also makes the case for future rate cuts more difficult this side of Christmas.”
However, others argue the data “should not delay” another Base Rate cut. Julian Jessop, economics fellow at the free market think tank, the Institute of Economic Affairs, said: “The latest UK inflation data were probably not good enough to tip the balance towards an interest rate cut this week, but the case for another move remains strong.
“The bigger picture is that the economy is slowing again, the labour market is cooling, and interest rates are higher than necessary to continue bearing down on inflation.”
The MPC’s nine-member committee backed the quarter-point reduction in a five-four split.
The decision will be announced at midday today.
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