PRESS RELEASE : PwC comments on the latest Bank of England interest rate decision [November 2022]

The press release issued by PWC on 3 November 2022.

Barret Kupelian, Senior Economist at PwC, comments on today’s BoE interest rate decision:

“Surprising no one, the Bank of England today increased its policy rate by 75 basis points to 3% which is its biggest hike for thirty years. At the same time, the Bank also released its Monetary Policy Report, which contains its latest thinking on the good, the bad and the ugly of the UK economic outlook. We summarise below.”

“The good: Consistent with our own forecast, the Bank thinks consumer price inflation will peak by the end of this year and gradually fall from early next year as the energy price falls out of the annual comparison. In its main scenario, the inflation rate falls under target by the second quarter of 2024 using market-determined interest rate paths, or slightly later when conditioned against a more accommodative policy rate of 3%.”

“The bad: The Bank expects Sterling’s effective rate to remain around 5% lower than its 2020/1 average or around 25% lower than its pre-financial crisis rate for the foreseeable future. However, the Bank also expects UK consumers and businesses to be hit with all the downsides of cheaper sterling (i.e. more expensive imports with import inflation expected to peak at 16% by the end of the year), but with very little of the upsides (i.e. higher volume of goods and service exports). In net terms the Bank expects virtually no growth spurt from cheaper sterling.”

“And the ugly: The Bank of England predicts that there will be virtually no growth in the next couple of years and a prolonged period of recession.This is a significantly worse economic performance compared to our peers, i.e. the US and the Eurozone. More worryingly, the Bank expects no growth in labour productivity and a fall in business investment, all of which make the UK a less attractive place to do business. Precisely because of the lack of growth, the Bank expects the unemployment rate to steadily increase to just around 6.5% in three years’ time.”