Highlights
The bank's February Monetary Policy Report (MPR) again paints a generally gloomy picture of economic activity but falling energy prices mean that the outlook now is much less bleak than set out in the November edition.
In particular, the real economy is no longer seen sliding into a record 2-year long recession. Growth is still expected to be negative through the first quarter of 2024 but the downturn is much shallower and the economy is predicted to be recovering over the latter half of the forecast horizon. Indeed, at the start of 2024, GDP is now expected to be just 0.7 percent smaller on the year, a marked improvement on the 2.0 percent contraction forecast in November. Against this backdrop, excess supply at the start of 2025 is put at 2 percent of potential GDP, down from 3 percent. In turn, the jobless profile has been revised significantly lower and, in two years' time, is put at 5.0 percent, a full percentage point below the November call.
Meantime, inflation is forecast to fall more quickly. By the start of next year the annual CPI rate is seen at 3.0 percent, down from 4.0 percent previously, and in two years' time at 1.0 percent, a couple of ticks lower than before and so further beneath its 2.0 percent medium-term target. However, that said, the bank acknowledges that there are sizeable risks surrounding the inflation outlook and puts the balance of risks on the upside.
In sum, taken at face value, the MPR's revised economic scenario argues against any further aggressive hikes in interest rates but inflation will have to behave itself if Bank Rate is to be cut before year-end.
In particular, the real economy is no longer seen sliding into a record 2-year long recession. Growth is still expected to be negative through the first quarter of 2024 but the downturn is much shallower and the economy is predicted to be recovering over the latter half of the forecast horizon. Indeed, at the start of 2024, GDP is now expected to be just 0.7 percent smaller on the year, a marked improvement on the 2.0 percent contraction forecast in November. Against this backdrop, excess supply at the start of 2025 is put at 2 percent of potential GDP, down from 3 percent. In turn, the jobless profile has been revised significantly lower and, in two years' time, is put at 5.0 percent, a full percentage point below the November call.
Meantime, inflation is forecast to fall more quickly. By the start of next year the annual CPI rate is seen at 3.0 percent, down from 4.0 percent previously, and in two years' time at 1.0 percent, a couple of ticks lower than before and so further beneath its 2.0 percent medium-term target. However, that said, the bank acknowledges that there are sizeable risks surrounding the inflation outlook and puts the balance of risks on the upside.
In sum, taken at face value, the MPR's revised economic scenario argues against any further aggressive hikes in interest rates but inflation will have to behave itself if Bank Rate is to be cut before year-end.
Definition
Formerly called the Quarterly Inflation Report, the Monetary Policy Report (MPR) is produced by the Bank of England (BoE) every February, May, August and November. The publication updates the central bank's assessment of recent economic developments at home and abroad and sets out the latest official forecasts for growth and inflation. As such, it provides the economic underpinnings for any change in monetary policy made by the Bank's Monetary Policy Committee (MPC). The MPR is released at the same time as the BoE makes its policy announcement
Description
For analysts who want to know the Monetary Policy Committee's latest thinking on the economy, the MPR provides an in-depth guide. As such it offers key information on economic trends and, in particular, areas where the Bank is primarily focused. The MPR is discussed at a press conference held by the BoE governor shortly after its release.
