Economic Perspectives –

MPC August meeting: focus on the inflation forecasts

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


2nd August 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:

  • At this week’s MPC meeting there are few expectations of any policy changes.
  • The Bank’s revised economic forecasts are expected to show an increase in the inflation forecast, at least for the near-term, whilst there may be an uplift to the GDP growth forecast. 
  • Net mortgage borrowing reached a record high of £17.9bn in June, ahead of the tapering of stamp duty relief.
  • Households borrowed a modest £0.3bn (net) of consumer credit in June.
  • From pre-pandemic February 2020 to June 2021 the household sector’s money holdings have increased by over £220bn.
  • The Nationwide reported house prices fell 0.5% (MOM) in July, after the tapering of stamp duty relief.
  • The SMMT reported that car production in June 2021 was the weakest total since 1953, bar Covid-hit June 2020. Production was hit by a global chip shortage and staff shortages.
  • According to the HMRC, around 1.9mn employments (sic) were on furlough on 30 June, compared with 2.4mn on 31 May.

International update:

  • In their July update, the IMF forecast global growth of 6.0% for 2021 (unchanged from the April forecast but with “offsetting revisions”), whilst growth for 2022 was modestly revised higher to 4.9% (4.4% in April). Prospects for emerging market and developing economies were marked down for 2021, whilst the growth forecast for advanced economies was revised higher.
  • The IMF revised the UK GDP growth projection to 7.0% for 2021 (5.3% in April), followed by a modest downgrade to 4.8% for 2022 (5.1% in April).
  • US GDP grew by a lower-than-expected 6.5% in 2021Q2 (QOQ, annualised), after increasing by 6.3% in 2021Q1, though personal consumption growth was strong.
  • Eurozone GDP rose by 2.0% (QOQ) in 2021Q2, after slipping 0.6% in 2020Q4 and a further 0.3% in 2021Q1 (thus having experienced a “double dip recession”). Growth in Germany was a disappointing 1.5% (2% was expected), whilst French growth was a subdued 0.9%. Growth was more buoyant in the Mediterranean countries. 
  • The Fed left policy unchanged at their July meeting.

Ruth Lea said “There are few expectations of any policy changes at this week’s MPC meeting, but the minutes of the meeting, and the revised economic forecasts, should be of particular interest, not least of all concerning the expected path for inflation and the implications for monetary policy. It is highly probable the Bank will raise the inflation forecasts in the near-term. But interest will focus on whether the Bank continues to take the view that CPI inflation will fall back to 2% in the medium-term, on the grounds that the current uplift in inflation is mainly a result of transitory factors.”





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Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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