In a speech, BoE Chief Economist Huw Pill said that “current momentum in economic activity may be slightly stronger than anticipated.”
“CPI inflation is projected to fall to below the 2% target by the end of the forecast horizon”, he said. But “there are considerable uncertainties around this outlook.”
“Upside risks arise in large part from the possibility that domestic inflationary pressures prove more persistent than anticipated, owing to so-called ‘second round effects’ in price, cost and wage setting behaviour,” he explained.
“The latest data for private sector regular pay growth – which was published after the MPC’s forecast was finalised – surprised slightly to the upside.”
Nevertheless, “some high-frequency indicators of wages have fallen quite sharply recently”.
“The MPC will continue to monitor indications of persistence in domestic inflationary pressures closely, with a focus on developments in the labour market, in wage dynamics, in services price inflation and in measures of underlying inflation and inflation expectations.”
