The case is strengthening, as the Bank of England announces its latest decision
turning point in Britain’s recovery from the financial crisis of 2008-09. In November 2017 the monetary policy committee of the Bank of England raised the base rate of interest from 0.25% to 0.5%, the first increase in over a decade. Nine months later came a further rise of equal size—and traders priced in another one shortly thereafter. But then the mood music changed. No further rises materialised .
The bank turned hawkish in 2017 because it feared that consumer-price inflation would settle above its 2% target. A 10% depreciation of sterling against other currencies after the Brexit referendum of 2016 made imports pricier. At the same time the unemployment rate continued to fall , forcing employers to compete harder for workers by offering them better pay. With weak productivity growth, thefeared that employers would be forced to pass on rising wage costs to their customers.
Lower-than-expected inflation also owes something to the level of demand in the economy. A trade war between America and China is causing global economic growth to slow . Britain’s economy, highly exposed to trade, moves in tandem with world trends. Brexit is another drag. Postponing it from March 29th to October 31st headed off the calamity of a no-deal exit, but the delay has prompted some companies to hold off on investment until the outlook is clearer.
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