Another rise in UK interest rates was already on the cards before Queen Elizabeth’s death delayed the Bank of England’s decision. If anything, the pause has made the case for rapid monetary tightening even clearer — the only question is how far policymakers will go at their meeting on Thursday.
The big change since the BoE Monetary Policy Committee last met in early August has been new prime minister Liz Truss’s plan to cap energy bills for households and companies, at an estimated cost of £150bn. This will lead inflation to fall faster in the next few months, but the plan amounts to a huge fiscal stimulus that will probably keep it higher in the medium term, unless the MPC acts to offset it.
“We do have work to do,” Huw Pill, the BoE chief economist, told MPs after Truss’s energy measures were announced, adding that the MPC’s focus would be how they affected inflation “at longer horizons”.