Overview
The disruption to global financial and credit markets continued. Current and expected policy rates fell. Sterling depreciated substantially. In the United Kingdom, output growth moderated to around its long-term historical average rate. Consumer spending growth appeared to soften and the climate for investment deteriorated. International prospects worsened, especially in the United States.
Under the assumption that Bank Rate falls in line with market yields, the Committee's central projection is for output growth to slow markedly this year and then gradually start to recover. The risks to growth are weighted to the downside.
CPI inflation was close to the 2% target in December. Pay growth was steady. But some measures of inflation expectations rose. In the central projection, higher energy, food and import prices push inflation up sharply in the near term.
Inflation then drops back to a little above the 2% target in the medium term, as the temporary boost from higher energy prices disappears and capacity pressures moderate. The risks to inflation are balanced.
The combination of slow growth and above-target inflation poses substantial challenges for policy.
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