Although output in the UK has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow. Conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train, posing downside risks to the outlook for both output and inflation further ahead.
Consumer price index inflation was 2.1% in October. Higher energy and food prices are expected to keep inflation above the target in the short term. Although upside risks to inflation remain, which the committee will continue to monitor carefully, slowing demand growth should ease the pressures on supply capacity, bringing inflation back to target in the medium term.
Against that background, the committee judged that a decrease in bank rate of 0.25 percentage points to 5.5% was necessary to meet the 2% target for CPI inflation in the medium term.
