The Bank of England opted for a 25bps hike at the August policy meeting.

Context is key. At nearly 8%, price growth is still almost quadruple target. Indeed, the UK now stands as something of an outlier among advanced economies, and developments on the wage front suggest progress could remain frustratingly slow, at least with regard to services inflation.

However, CPI rose “just” 7.9% in June, down sharply from the prior month’s annual pace and the largest downside miss to consensus in two years. Both core and services inflation ticked lower, a welcome reprieve to be sure.

That helped tip the scales in favor of Thursday’s downshift back to a 25bps cadence. The vote was 6-3, underscoring a lack of consensus amid the ambiguity. Another 50bps move was certainly possible. Haskel and Mann dissented in favor of a second straight half-point hike. With Tenreyro gone, Dhingra was the sole dovish dissent. She wanted a hold.

Thursday’s hike was the 37th in a row. I’m just joking. But I had lost count. With August’s move, the bank is 14 hikes in. And inflation is still 7.9% (bless their hearts).

“Inflation is expected to fall significantly further, to around 5% by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation,” the new statement read. That’s convenient. 5% is Rishi Sunak’s year-end goal. “Services price inflation, however, is projected to remain elevated at close to its current rate in the near term,” the MPC went on.

Lampooning the projections feels gratuitous at this point, but I can’t help myself. The figure below traces the history of the BoE’s forecasting efforts in the pandemic era.

The bank was hardly alone in failing to get it right on inflation, but that visual never ceases to amaze — and never fails to elicit a chuckle. The new projections, released on Thursday, are denoted by the purple dots. The forecasts now extend into Q3 2026, when inflation will be 1.5%, the bank imagines. It’ll return to target sometime midway through 2025.

Recall that the BoE differentiates between forecasts based on market-implied policy rates and current policy rates. Terminal rate expectations have come down to around 5.75% recently, but the BoE conditioned the updated projections on a peak of “just over” 6%.

“The Committee continues to judge that risks around the modal inflation forecast are skewed to the upside, albeit by less than in May, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices take longer to unwind than they did to emerge,” policymakers mused.

The statement opened the door to a pause, but the bank retained its optionality for obvious reasons: Inflation is nowhere near target and isn’t expected to return to target for nearly two years.

The BoE reckons policy is restrictive, but said it’ll monitor “indications of persistent inflationary pressures,” including and especially the nexus of labor market tightness, wage developments and services inflation. “If there were to be evidence of more persistent pressures, then further tightening would be required,” the bank said.

I don’t think there’s much else to say here, honestly. The BoE is an outlier just like the economy over which it presides. Everyone wishes them the best of luck in what’s proven to be an especially difficult endeavor even controlling for the uniquely arduous circumstances.