Slowing recovery eases pressure to hike

The Monetary Policy Committee (MPC) signalled in August that it is getting closer to raising interest rates, but the gloomy tone of the recent news on the global and UK economies will have reduced the pressure on the MPC to tighten policy. So a rate rise this month doesn’t seem likely. Admittedly, if the recovery regains some pace, it is easy to see some MPC members voting for a rate hike in early 2022. But if we are right in thinking that the bulk of the shortages will prove temporary and that inflation will fall back almost as sharply next year as it rises in 2021, then we think the MPC won’t vote to raise rates until 2023.