DAVY VIEW

Yesterday (August 5th), the Bank of England struck a more hawkish tone, indicating a modest tightening of interest rates is likely and setting out plans to start unwinding its £895bn of QE asset purchases. The Monetary Policy Committee (MPC) still expects GDP growth of 7.25% in 2021 but is now forecasting CPI inflation to hit 4% this year. In his press conference, Governor Andrew Bailey highlighted labour shortages and pay growth as a potential risk to the MPC’s benign view that CPI inflation should fall back to 2% in 2023.