\n<\/p>\n
So why has the Bank of England cut rates when inflation is well above its target of 2% and seems set to remain there? <\/p>\n
This vexed question is why the proceedings of the Bank’s nine member Monetary Policy Committee were so close and even involved an unprecedented second vote.<\/p>\n
The bottom line is that in the medium term the Bank sees the jobs market as exerting less upward pressure on inflation, because of a fall in the number of job vacancies and an increase in the jobless rate. <\/p>\n
But Bank governor Andrew Bailey and his team will have some explaining to do.<\/p>\n
Inflation remains high, and the very visible food price inflation figures look set to go up over the remainder of the year. <\/p>\n
So the ripples of inflation remain and there are risks around an expected further cut in interest rates in November.<\/p>\n
It is notable that both deputy governor Clare Lombardelli and chief economist Huw Pill voted to hold rates, against the judgement of the governor. <\/p>\n
Mr Bailey acknowledged to me that there was now more uncertainty about the pace of cuts, which it had previously been assumed would continue at once per quarter into next year.<\/p>\n<\/div>\n
The bigger question is why this series of cuts – five over the past year – has not boosted the economy more dramatically. <\/p>\n
The Bank expects second quarter GDP growth, which will be published by the Office for National Statistics next week, to be just 0.1%.<\/p>\n
However, thereafter it does predict that in the third quarter, economic growth will pick up to 0.3%, partly on the back of the prime minister’s trade deal with the US boosting what had been flagging exports. <\/p>\n
Obviously, the global backdrop has weighed down on the economy. <\/p>\n
The Bank points to the 24% drop in UK car exports to the US in May. That should now reverse.<\/p>\n
The notable economic factor has been the very high rate of savings in the economy, remaining at pandemic double digit levels as a proportion of the economy. <\/p>\n
Essentially, although pay has been rising faster than inflation, consumers have not felt confident enough to increase spending. This is partly an expected result of what were high interest rates. <\/p>\n
But the general negative vibe, not helped by what was a rather downbeat drumbeat from government last year, does appear to have held consumers back.<\/p>\n
If spending reverts to normal, and savings rates decline, then the Bank predicts a notable improvement in economic growth, eventually.<\/p>\n
But the lingering suspicion that inflation has not quite been defeated, which will be seen in upcoming food prices, remains. <\/p>\n
And the Bank clearly is picking up the impact of some government policies, from the rise in National Insurance for employers, and the national living wage.<\/p>\n<\/div>\n