What the Bank of England does next

It became clear this week that however much the Bank of England has been softening its view on rate rises ahead, stressing a broad desire not to crush the economy, it still has a job on its hands to get inflation down.

The debate now – here and elsewhere – is focused on what should tightening from this point look like. The beast has been caged but not calmed and central banks everywhere are weighing up the merits of pausing rate hikes but keeping them higher for longer, against pushing rates higher now to try to secure complete control. It’s a choice between smooth and drawn out, and sharp and short. The expectation is that the Federal Reserve will pause rather than hike next week, while the Bank of England looks likely to raise its base rate to 5.5 per cent on 21 September.

The rate of price rises in the UK for the month of August will also be announced next week, and it’s likely to show an upturn in inflation from 6.8 per cent, rather than another fall, echoing the similar small jump in the US headline rate from 3.2 to 3.7 per cent, and with the same driver of rising fuel costs behind it. But rather than strengthening the case for a further 25 basis point hike this month or in the future – the monetary policy committee (MPC) may be comfortable dismissing the rise as a blip. Both the Bank’s governor, Andrew Bailey, and chief economist Huw Pill have been keen to underline that we are close to the end of the hiking cycle, that inflation is firmly on the way down and that policy is already in restrictive territory.