Highlights
Reflecting significantly higher interest rate assumptions in financial markets, the bank's new Monetary Policy Report (MPR) shows significantly weaker growth over the forecast horizon than in the May edition. However, inflation over the medium-term is expected to be higher than before, albeit still below its 2 percent target.
With markets now pricing a peak to Bank Rate of around 6 percent versus just 4 percent last time, forecast annual GDP growth in the third quarter of 2024 is put at just 0.3 percent, half its previous projection. Moreover, by the third quarter of 2025, the rate is still seen at 0.3 percent, down from 0.8 percent in May and output is predicted to be some 1.25 percent below its potential.
At the same time, inflation is shown declining from 6.9 percent this quarter to 2.8 percent a year later and to 1.7 percent in the third quarter of 2025. The latter figure is up from 1.0 percent in expected May. In three years' time the rate is seen at 1.5 percent and so still below target.
Taken at face value, the latest forecasts suggest that the BoE should be cutting, rather than raising, Bank Rate. However, with the Bank itself conceding that its economic models are not working properly, the MPC clearly has about as much faith in the projections as private investors.
With markets now pricing a peak to Bank Rate of around 6 percent versus just 4 percent last time, forecast annual GDP growth in the third quarter of 2024 is put at just 0.3 percent, half its previous projection. Moreover, by the third quarter of 2025, the rate is still seen at 0.3 percent, down from 0.8 percent in May and output is predicted to be some 1.25 percent below its potential.
At the same time, inflation is shown declining from 6.9 percent this quarter to 2.8 percent a year later and to 1.7 percent in the third quarter of 2025. The latter figure is up from 1.0 percent in expected May. In three years' time the rate is seen at 1.5 percent and so still below target.
Taken at face value, the latest forecasts suggest that the BoE should be cutting, rather than raising, Bank Rate. However, with the Bank itself conceding that its economic models are not working properly, the MPC clearly has about as much faith in the projections as private investors.
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.
