It is still widely expected that the MPC will raise the Bank Rate (from 0.75% to 1.0%) at its May meeting (announcement 5 May).
However, the minutes of the March MPC (announcement 16 March) were noticeably more dovish than in February.
Moreover, Bank Governor Andrew Bailey recently indicated concern about the Bank’s triggering a recession by raising rates too quickly in its attempt to control inflation.
There will be revised forecasts for the May MPC meeting, and it can be expected there will be further upward revisions to the inflation forecasts and further downgrades to the GDP forecasts.
Retail sales volumes fell, somewhat disappointingly, by 1.4% (MOM) in March, after a fall of 0.5% (revised from 0.3%) in February.
The latest Markit indicators suggested that there was some overall slowdown in activity in April, centred on the services sector, but manufacturing output seemed to improve.
Public sector net borrowing (PSNB-ex, excluding public sector banks) in March 2022 was £18.1bn, the second-highest March borrowing since monthly records began in 1993, compared with £26.8bn in March 2021.
PSNB for FY2021 totalled £151.8bn, around 6.4% of GDP and the third-highest FY borrowing since records began in FY1946 (FYE March 1947). This compared with £317.6bn in FY2020. A reduction of £67.4bn in subsidies was partially offset by a £30.5bn increase in debt interest payments.
Public sector net debt (excluding public sector banks, PSND ex) at end-March 2022 was £2,343.8bn or around 96.2% of gross domestic product (GDP), reaching levels not seen since the early 1960s.
Ruth Lea said “…Bank Governor Andrew Bailey’s recent comments were telling. He said ‘…we are in a period of unprecedentedly large shocks. We’ve had shock after shock after shock – we’ve come out of the Covid period and now we’re faced with the appalling things that Russia is doing in Ukraine. We are walking a very tight line between tackling inflation and the output effects of the real income shock, and the risk that that could create a recession and push us too far down in terms of inflation’. However, there are still widespread expectations that the MPC will raise the Bank Rate to 1.0% in May, given the rising inflationary pressures. Granted retail sales were weaker in March, but the most recent data suggest that the labour market is still very robust.”