Some in the City are increasingly of the view that the Bank is running behind the curve, with prices rising for consumer goods and business commodities such as timber and copper.
The Bank said today: “Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory.”
Inflation jumped from 1.5% to 2.1% at the last reading.
Jon Hudson, fund manager of the Premier Miton UK Growth Fund, said: “Despite the UK economy rebounding quicker than the Bank of England’s own forecasts, and inflation also exceeding the 2% target in May, the MPC have left policy unchanged. The belief is that current levels of higher inflation are nothing more than transitionary and there is plenty of slack in the economy. With household and business confidence both riding high, it is likely the Bank will turn more hawkish in the autumn.”
Hinesh Patel, portfolio manager at Quilter Investors: “As the Bank of England continues to hold fire on any policy decisions, it is approaching somewhat of a sliding doors moment. The ongoing solid economic recovery from the pandemic will be seen as a big positive, but it has brought with it a short-term headache by the way of inflation.
“By headline measures, there is no longer any need for the levels of quantitative easing that markets have become so addicted to. However, with every one in four pounds of public spending coming from borrowing without indirect support from the Bank debt sustainability will be ever-more problematic in the future.
The Bank isn’t expected to move rates until early 2023 at the earliest. The US Federal Reserve might well move sooner than that.
The pound slipped a little on today’s statement.
Simon Harvey, senior FX market analyst at Monex Europe, said: “On the whole, today’s policy statement suggests that the Bank of England has an incrementally more dovish reaction function than what was witnessed prior. This has weighed on sterling and gilts this afternoon, with GBPUSD now trading closer to the 1.39 handle than the 1.40 level it was testing yesterday.”