The MPC said it expected the UK economy would shrink by 0.1% between July and September, otherwise known as the third quarter. This comes after it contracted by 0.1% in the second quarter.
Nevertheless, inflation is currently nearly five times the Bank of England's 2% target and even if it peaks in October, it is expected to remain above 10% "over the following few months" before starting to fall.
Following the financial crisis, borrowing costs have stayed at, or close to, record lows after the Bank of England intervened with cuts following the UK's vote to leave the European Union in 2016 as well as during the Covid pandemic.
The Bank of England has continued on its path of interest rate raises, but the real question now is how high are rates going to go. Financial markets predict that the rate will go close to 5%, and that is higher than in the US and the Eurozone. This reflects higher inflation here.
Today the Bank held back from a 0.75 percentage point jumbo rate rise, as the US Fed had done last night. Foreign exchange markets were looking to see whether the UK would follow the US tough rhetoric against inflation too. But it was a close vote.
The Bank expressed some relief that inflation would now peak at 11% next month, thanks to the government's energy interventions. But rates are still going up because the Bank sees more inflation arising from the British economy itself, even as the energy shock has been muffled.