The bank's May Monetary Policy Report (MPR) fully justifies today's decision to tighten with a revised forecast that shows both (much) higher economic growth and a still marked, but slower, deceleration in inflation.

In terms of real GDP, annual second quarter growth is now put at 0.0 percent, up from minus 0.7 percent in the February MPR, and at 0.9 percent in a year's time, up from minus 0.3 percent. Two years ahead, growth is seen at 0.7 percent, some 0.5 percentage points higher than previously thought likely. As a result, by the end of the projection horizon, total output is expected to be a whopping 2.25 percent higher than seen last time, the largest revision in the MPC's history. The adjustments reflect stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility of lower precautionary saving by households than assumed earlier due to a a tighter labour market.

The MPR notes that there remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2 percent target. Increasing economic slack and declining external pressures are still thought likely to cause the rate to fall to materially below 2 percent at the 2-year and 3-year horizons but the MPC also continues to judge that the risks around the forecast are skewed significantly to the upside. Inflation is now put at 3.4 percent in one year's time, up from 1.0 percent, and at 1.1 percent in the second quarter of 2025, up from 0.8 percent.

The magnitude of today's revisions will leave most investors all the more likely to take the forecasts with a sizeable dose of salt. The bottom line is that the bank is struggling to get to grips with the way in which the economy is currently working which makes the task of predicting where inflation is headed all the more difficult. As such, more than ever, policy is likely to be set on the basis of the latest data.

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

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.