Given the troubles stacking up for the UK economy, it’s not a surprise that the Bank of England has opted for the least worst option which right now is to do nothing, and make no changes to monetary policy.
The fact that there was unanimous agreement around the table at the monetary policy committee not to raise rates highlights the conundrum facing policymakers.
They have a particularly difficult puzzle to piece together right now because rising prices are now acting as a drag on the economic recovery, which limits their room for immediate manoeuvre on action to curb soaring inflation. In just a month pressures have mounted so much that the Bank is now downgrading its forecast of economic growth for the third quarter by 1%,
Supply chain problems are clearly looming large. The latest ONS Business insights survey showed that in late August almost one in five businesses were either not able to get the materials, goods or services they needed from within the UK, or were forced to change suppliers or found other alternatives.
This is a headache which is particularly severe for the construction industry, with 36% of firms saying they couldn’t get what they needed or had to find other ways to access key materials or services.
It’s not just a pandemic effect, Brexit has undoubtedly made the situation worse, with 60% of importing businesses continuing to state that they have faced challenges importing.
The HGV driver shortage remains acute and that’s underlined in data showing that the transportation and storage industry had the lowest percentage of businesses currently trading in early September 2021, at 80%.
The shortage of drivers has meant that firms have simply had to cease trading because they can’t fulfil jobs.
Added into this volatile mix are stubbornly high furlough figures.
It’s estimated up to 1.7 million people are still supported by the jobs retention scheme, which is soon to disappear.
While some may be lucky enough to retain their jobs, it’s feared many could join the ranks of the unemployed, but without the skill set to fill rising vacancies.
Already faced with rising prices in the shops, and now soaring energy costs, a mass of disappearing incomes is also likely to hit consumer confidence, and potentially put yet another brake on economic recovery.
There was dissent on continuing the current scale of the mass bond buying programme which has kept cheap money washing around the financial system.
Two members voted against continuing with the existing programme, and there are hints that tinkering with monetary policy here is on the agenda, but no clear timetable was set.
The Bank is taking a softly softly approach, not wanting to be seen to be even thinking about whipping away the comfort blanket wrapped around financial markets just yet for fear of provoking any kind of taper tantrum.