The Bank of England has again ramped up its warnings about rising prices and admitted the economy is not growing as fast as it had expected.
However, it stopped short of taking action in a bid to help cool costs as its monetary policy committee (MPC) kept interest rates on hold and maintained the Bank’s £895bn bond-buying support for the post-COVID economic recovery.
The Bank said its staff now expected growth during the current third quarter to come in 1% down on earlier estimates amid the growing price boom and other challenges.
They include extra costs associated with a shortage of workers, global supply chain delays and surging energy prices including the record rise in wholesale gas costs that are set to bite household finances in the months to come at a time when government COVID aid, including furlough cash and the Universal Credit uplift, will have been withdrawn.
The Bank has consistently pointed to a central view that the energy spike this year – the main cause of the price problem – would be “transitory”.
It has blamed the bill pressures on the consequences of the economy reopening and seen the effects as temporary despite concerns raised by its-then chief economist Andy Haldane.
The MPC then warned, just last month, that a “modest tightening” of policy may be required to help cool prices as it predicted the consumer prices index measure of inflation hitting a 10-year high of 4%.
The Bank delivered its verdict hours after a snapshot of private business activity pointed to stagnating economic growth and an acceleration in the pace of price increases – a scenario known as “stagflation”.
The IHS Markit/CIPS flash purchasing managers’ index survey showed confidence at its weakest since January.
Chris Williamson, IHS Markit’s chief business economist, said of the findings: “While there are clear signs that demand is cooling since peaking in the second quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labour, most notably in the manufacturing sector but also in some services firms.
“A lack of staff and components were especially widely cited as causing falls in output within the food, drink and vehicle manufacturing sectors.
“Shortages are meanwhile driving up prices at unprecedented rates as firms pass on higher supplier charges and increases in staff pay.”
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