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Bank of England Monetary Policy Report:  Members will, of course, be aware that the Monetary Policy Committee (MPC) voted 7-2 to keep the UK Bank Rate unchanged at +0.1% while at the same time signaling that an upward movement was likely soon - either at their December meeting or, perhaps more likely, in February at the time of their next full report.

From comments made by the Bank’s Governor, this was clearly a close decision but various factors, including a desire for more data about how the labour market has reacted following the end of the furlough scheme and the fact that changes to UK interest rates will have little or no impact on inflation that is being driven by global factors such as higher oil and gas prices led to the majority voting to keep rates unchanged this month.

It is also important to remember that the MPC’s remit is for inflation to be +2%, ±1 percentage point, in two years’ time.  Given the lag between policy changes and their impact on inflation it is arguably too late to do anything about their expectation that inflation will peak at around +5% next Spring - specifically, modelling by Oxford Economics suggests that this will be in April.  Instead, it is clear that the MPC is concerned that second round effects will mean that inflation will remain above its target once the temporary factors have worked through the calculations.  They comment that they “now expect interest rates will need to rise modestly to return inflation to our 2% target”, highlighting this more medium-term concern.

The MPC, like many other forecasters, have downgraded their expectations for GDP growth in the UK this year and it now stands at +6.7% (+8.5% in the August forecast) but have moved some of this in to 2022 which is now predicted to see growth of +2.9% (+2.3% in August).  This is slightly complicated because the MPC uses the 4-quarter rate as at Q4 which is not quite the same thing as the calendar year rate that is normally quoted;  however, they do include charts comparing their forecast with those from a range of other organisations and, for the Q4-2021 forecasts, the MPC are near the bottom of the range for GDP, are the lowest for unemployment rate (implying no fall-out from the ending of furlough) but have one of the highest projections for inflation.

The latest feedback from the Bank’s Agents noted that manufacturing activity slowed even though demand was firm, as a result of shortages of a range of raw materials, components and finished goods.  This situation was exacerbated by shipping container issues and intermittent closures of some Chinese ports – this has extended lead times from Asia which has led to production stoppages, most notably in the automotive sector.

Investment intentions in manufacturing for the next 12 months picked up strongly with a net balance of over +30 compared to +10 for the past 12 months.  Although not specifically mentioned as being for manufacturing, the Agents said that a desire to increase efficiency and productivity and to improve digital capacity were the main drivers of investment.

You can get more details from the MPC report from their web-site at or request the report pdf file from MTA.


European GDP, 3rd Quarter 2021:  Eurostat has published its preliminary flash estimate of GDP which shows quarter-on-quarter growth of +2.2% in the Euro-zone and +2.1% for the EU as a whole.  These are similar rates to those seen in the previous quarter.

Looking back to the same period last year, GDP is estimated to have grown by +3.7% in the Euro-zone and +3.9% for the EU.  Inevitably given the disruption in the 2nd quarter of 2020, these represent much slower annualized growth than we saw in the previous data but that is not really relevant given the disruption in 2020 from the pandemic.

At this stage, we only have the data for a handful of the Member States and some of these follow a similar pattern of reasonable growth at similar levels across the 2nd and 3rd quarter of the year.  However, while Germany had growth of +1.9% and +1.8% and Italy saw growth of +2.7% and +2.6% respectively over these two periods, there was a notable improvement in growth in both France (+1.3% and +3.0%) and Spain (+1.1% and +2.0%).

Austria and Portugal had the strongest growth in the 2nd quarter and, perhaps inevitably, saw slower but still healthy increases in GDP in the 3rd period of the year (+3.3% and +2.9% respectively for Q3).  However, there were two other countries that recorded little or no growth in the latest period – Latvia recorded growth of only +0.3% and Lithuania had no change on a quarter-on-quarter basis.

You can download the report from the Eurostat web-site at (29 October) or request it from MTA.