Unemployment fell further over the summer, and job vacancies rose to a record high. “On the other hand, revisions to the second quarter GDP showed the economy closer to its pre-pandemic size than initially thought. Plus, sluggish growth over July and August points to GDP in Q3 rising by around 1.6% quarter-on-quarter, well below the MPC’s 2.9% forecast in August. Retail sales fell in September for the fifth successive month, and GfK’s measure of consumer confidence in October reached an eight-month low. On the one hand, the consumer picture has dimmed. “Recent economic developments could sway the committee either way. But the EY ITEM Club thinks the majority will stick with no change. Based on recent comments and voting records, three members seem likely to vote for an immediate rise in Bank Rate. “November’s MPC meeting will probably see the split on the committee, evident in recent months, widen.
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Martin Beck, senior economic advisor to the EY ITEM Club, says: Meanwhile, tightening policy when other major central banks are still in loosening mode would seem incongruous, particularly when the UK economy was more affected by the pandemic than the US and the eurozone. The global forces pushing inflation up are largely beyond the ability of monetary policy to influence, and there is little evidence of inflation expectations among the public breaking out.
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But data to make that assessment are still lacking. In its last meeting in September, the MPC judged that it would be desirable to assess the impact of the end of the furlough scheme before changing policy.But while a minority on the committee may vote for a rate increase, the EY ITEM Club thinks most will choose to wait. Recent comments by Bank of England governor Andrew Bailey and some others on the Monetary Policy Committee suggest it is difficult to tell whether this week’s meeting will see interest rates rise for the first time since November 2017.