The Bank of England left monetary policy unchanged though one rate setter voted to reduce the target for bond purchases as the central bank predicted inflation would rise higher than previously expected.
The monetary policy committee voted unanimously to leave interest rates at their record low of 0.1% and voted 7-1 to maintain the £875bn target for government bond purchases.
Michael Saunders, an external member of the MPC, voted to reduce the bond-buying target to £830bn. Saunders and another member, Dave Ramsden, gave speeches recently expressing concern about inflation.
Inflation was 2.5% in June, above the BoE’s 2% target. The central bank said on Thursday it expected inflation to hit about 4% by the fourth quarter of 2021 – higher than predicted before – before falling back close to the target from that point on.
“The committee’s central expectation is that current elevated global and domestic cost pressures will prove transitory,” the BoE said. “Nonetheless, the economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May [inflation] report.”
BoE Governor Andrew Bailey has said the BoE would not be rushed into increasing rates with the economy still fragile and little evidence that rising prices would persist. But some economists, including former Governor Mervyn King, have warned against complacency over inflation.
