IoD: Interest rates decision logical given inflation will be sticky for next few months

Commenting on the decision of the Monetary Policy Committee of the Bank of England to hold interest rates at 5%, Anna Leach, Chief Economist of the Institute of Directors, said:

“Today’s 8-1 vote by the MPC for no change in rates was widely expected by markets and analysts. The Bank has indicated a “gradual approach” to lowering rates as being appropriate. This is logical given that inflation will be sticky for the next few months, with the Ofgem price cap set to increase by 10% and domestic inflation measures still high.

“All else equal, we should see a rate cut in the November meeting, which follows shortly after what promises to be rather difficult October Budget. With public sector pay settlements judged to have a mildly inflationary impact, and the labour market remaining on the tight side, it’ll be interesting to see how the overall package from the Chancellor is judged by the Bank to influence the overall outlook for inflation and the pace of rate cuts.”