The May meeting of the R&B Housebuilders Forum welcomed back Gareth Harrison from the Bank of England who gave members a fascinating insight into how the Bank is reading the economic environment and what it means for the direction of travel for interest rates.
With inflation on the rise again, largely due to higher energy prices linked to ongoing conflict in the Middle East, the Bank has chosen to hold interest rates at 3.75% for now rather than cutting further. While the Bank remains committed to bringing inflation back down to its 2% target, the path to getting there has become more uncertain since war broke out at the end of February.
Despite inflationary pressures being felt across the economy, wage growth has been slowing in recent months and businesses are absorbing much of the energy cost increase through tighter margins rather than pushing it through into pay packets. This is giving the Bank a degree of confidence that the recent inflation rises will not become entrenched compared to those that followed COVID.
Looking ahead, the Bank has mapped out a range of possible scenarios depending on how energy prices move. The broad message was one of cautious optimism, but with a clear warning that rates could need to rise again if inflationary pressures prove more stubborn than expected.
For those of you who missed out on Gareth’s talk, it can be viewed on our YouTube channel. To request a copy of the presentation, email RBHousebuilders @heracomms.com
