Bank approaches end of largest tightening cycle in 30 years – but higher-than-expected inflation will prolong living-standards pain 11 May 2023 The Bank of England is approaching the end of the largest tightening cycle since Norman Lamont was hiking rates to keep Britain in the ERM, but it says further rate rises may be needed if high inflation is proves to be stickier than expected, the Resolution Foundation said today (Thursday) in response to the Bank’s latest Monetary Policy Report (MPR). The Monetary Policy Committee (MPC) increased the base rate for the 12th successive time to 4.5 per cent – and suggested that a further rise may be needed, as inflation proving harder to bring down than previously forecast. The Bank now expects CPI inflation to halve from 10.2 at the start of the year (Q1) to 5.1 per cent by the end (Q4), up from 3.9 per cent in its February forecast. The primary cause of this is food price inflation – which is at its highest level in nearly half a century and looks set to come down more slowly than previously expected. The Bank now expects food and non-alcoholic beverages to be contributing 2.0 percentage points to CPI inflation in June, a third higher than in February (when it expected food to be contributing 1.5 percentage points). More positively, the Bank upgraded its GDP forecast and lowered its unemployment forecast, with the economy no longer expected to fall into recession this year. However, the economy is flat-lining rather than growing, and the country remained mired in a deep cost of living crisis. The Foundation’s analysis of the latest OBR forecasts shows that a typical non-pensioner household will be 4 per cent (£1,100) worse off in 2023-24 than in 2021- 22. James Smith, Research Director at the Resolution Foundation, said: “The Bank has raised rates for the twelfth time in a row to its highest level in almost 15 years, but the largest tightening cycle since Britain tried to stay in the ERM looks like it is drawing to a close. “But while interest rate rising may be nearly at an end, the cost of living crisis is far from over, with spiraling food prices likely to mean that it will take longer to get inflation down. Britain’s two-year squeeze is on track to cost a typical family around £1,100 a year. “And while fears of a recession are fading away, the challenge of securing stronger, sustained economic growth looms as large as ever.”
