Monetary Policy Report - November 2019

The interest rate decision

We set interest rates to influence spending in the economy to ensure inflation (the pace of price rises) returns to our 2% target sustainably.

Low and stable inflation supports jobs and growth.

Over the past decade, our economy has needed interest rates to stay very low.

Recently, the UK economy has slowed as firms’ uncertainties about Brexit have become entrenched and growth in the world economy has slowed. UK inflation has fallen back to just below our 2% target. This month we have kept interest rates unchanged.

With the risk of a no-deal Brexit falling recently, we expect the uncertainty facing households and businesses to fall. We also expect global growth to recover gradually. These developments should help growth here in the UK.

If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2% target sustainably.

If the economy develops as we expect, then upward pressure on prices should build gradually over the next few years. In that case, we think a modest increase in interest rates is likely to be needed to keep inflation at our 2% target.

• View chart See how low Bank Rate is compared with the past
  

Back to top

Inflation is a little below our 2% target

Inflation is currently just below our 2% target.

We expect it to fall further below target next year partly because of lower utility bills.

After that, we expect inflation to rise gradually to a little above our target.

One factor contributing to that rise is faster pay growth.

Pay rises for most people have been low in recent years. But the Office for National Statistics reports that, on average, pay is now rising at a faster rate.

Faster pay growth is good news as it supports spending and helps the economy grow.

But it also raises costs for some companies, which pushes up the prices they charge.

• View chart See how pay is now rising at a faster pace
  

Back to top

If growth stays weak, interest rates could fall. If growth recovers as expected, rates may need to rise

We expect the uncertainty facing households and businesses to fall. We also expect global growth to recover.

If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2% target sustainably.

If the economy develops as we expect, then upward pressure on prices should build gradually over the next few years.

In that case, we think a modest increase in interest rates is likely to be needed to keep inflation at our 2% target.