# Consensus clean bowled – again!

_The MPC held rates at 3.75%, but two members still voted to raise them. Neil Woodford on why the data made holding obvious, why the Bank keeps misreading inflation in the same direction, and why the next move is down._

Neil Woodford · 17 June 2026 · 9 min read

![Image shows a cricketer being bowled out](https://cdn.sanity.io/images/v3acfbvo/production/b8e7ff0970cd6df03b229eb826a39ebdc8e3c53a-4968x3268.jpg?w=1600&fit=max&auto=format)

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There has been an outbreak of common sense. The MPC voted today to hold rates at 3.75%, which, given everything we now know about the state of the UK economy, was the only sensible decision. It was not, however, a universal outbreak, because two members of the committee voted for an increase. _(Neil in the margin: The Monetary Policy Committee — the Bank of England's nine-member body that sets Bank Rate. Two external members plus the Bank's own officials vote, and dissents like the two for a rise here are published in the minutes.)_

Set that against the backdrop. Oil is only about 8% above where it was before the war broke out. Private sector wage settlements are running at 2.9%, the lowest in five years. Inflation, at 2.8%, has fallen this year and is considerably lower than in the US and the EU. The economy shrank by 0.1% in April, and the labour market is weak, with falling vacancies and lower payroll employment. Against all of that, one has to wonder what on earth might prompt these dissenters to vote for a cut. Based on this evidence, it might take a 1930s-style depression.

Yesterday's inflation data sealed it. UK CPI for May, released yesterday, was once again significantly better than the consensus had forecast, and it follows April's data, which was similarly very good. The headline rate, at 2.8%, was an astonishing 0.5% lower than the MPC's own April projection of 3.3%. In May last year, CPI was 3.4%. In other words, headline inflation in the UK has fallen year on year against a backdrop of what has been described as a "major energy price shock". _(Neil in the margin: The Consumer Prices Index, the official inflation gauge the Bank targets at 2%. Note this is the headline rate; the 'core' measure stripping out food and energy is the one policymakers usually watch for persistence.)_

The detail was just as telling. Core inflation rose marginally, from April's 2.5% to 2.6%. Food inflation fell to 2.1% from April's 2.9%, restaurant inflation fell, and so did goods inflation. Services inflation rose from 3.2% to 3.7%, but largely because of base effects, as a fall in services inflation in May 2025 dropped out of the comparison; even so, services inflation was still 1% lower than this time last year. And perhaps most interesting of all, given the cacophony of dire warnings about higher fuel prices and their downstream inflationary consequences, fuel prices actually fell in May, having risen by 15% in April. (Anyone who monitors what it costs to fill their car would already have known this, but given that MPC members are probably all chauffeured in EVs hither and thither to their next speech on the downstream effects of energy price shocks, they couldn't possibly have known.) _(Neil in the margin: A base effect is when the annual rate moves simply because of what happened a year earlier dropping out of the twelve-month comparison, not because of fresh price pressure now — here a soft May 2025 flatters the May 2026 figure.)_

Looking ahead, my guess is that the oil price falls we have seen so far, which have already taken diesel and petrol prices lower and will continue to do so if sustained, will offset about half of the inflationary impact of the already announced 13% increase in the energy price cap for July through to October. Food price inflation will probably pick up in the second half of the year, too. Nevertheless, the starting point is much lower inflation than the MPC expected only eight weeks ago, so my guess is that inflation in the UK will peak in September somewhere close to 3% – and if the oil price stays around the $80 mark or falls further, even that may be too pessimistic. Either way, once again, the MPC, its inflation hawks and the economic consensus have been far too bearish. _(Neil in the margin: Ofgem's quarterly ceiling on what suppliers can charge a typical dual-fuel household — it caps unit rates, not the total bill. Movements in it feed mechanically into CPI.)_

Let's not forget what they were saying only a matter of weeks ago. Huw Pill, the Bank of England's Chief Economist, who voted for a rate increase at the last two MPC meetings, said the energy "shock" had imparted a persistent inflationary impulse to the UK economy and that a prompt but modest increase in rates was necessary to quell the inflation risks exacerbated by the conflict in the Middle East.

In the April Monetary Policy Report, the Bank outlined three scenarios to illustrate how different paths for energy prices could affect the economy. My summary at the time was that they were essentially bad, pretty bad and awful. No scenario was outlined that showed anything close to what has actually happened. In the Bank's best-case projection – based on market futures curves, which by the way have a terrible track record of reliably predicting oil prices – the forecast was that oil would fall below $80 by Q1 2027 and return to its pre-war level of $72 by the end of 2028. Less than eight weeks later, Brent has gone below $80, a full nine months earlier than the Bank's most optimistic forecast. I won't dwell on the worst case, which was frankly ridiculous, other than to note that it had gas prices spiking to 211p per therm, which the report suggested was consistent with "continued disruption to Middle East energy supplies". For comparison, wholesale gas prices in the UK are currently about 100p per therm. _(Neil in the margin: The forward prices traders pay for oil delivered in future months. The Bank conditions its forecasts on these, but as Neil notes they are a poor predictor — they tend to assume prices drift gently back to today's level rather than spike or slump.)_ _(Neil in the margin: A therm is the standard wholesale unit for gas (about 29 kWh). Set the worst-case 211p against today's ~100p and the scenario implied a doubling that simply never came.)_

A few weeks ago I wrote about another member of the MPC, Megan Greene, who was also warning that the committee should pre-emptively raise rates to head off the inflation risks of the recent "energy shock". Without rehearsing all the arguments again, I still struggle to see how this three-and-a-half-month spike and subsequent slump in oil prices can be characterised as a major shock, especially now that Brent is back to only around an 8% premium to where it was before the conflict and wholesale gas prices are almost exactly where they were twelve months ago. The familiar argument about second-round effects doesn't hold water either, given the last two months' inflation data combined with the fact that private sector wage settlements, most of which are negotiated early in the year, are hovering at or slightly below 3%.

The context here, let's not forget, is that inflation in the UK has fallen in 2026. It was 3.4% in December 2025, 3% in January, 3.3% in March, and is now 2.8% in both April and May – and yet apparently the UK has been subjected to a major energy price shock, and various members of the rate-setting committee have been calling for higher rates to head off ghostly second-round effects.

Once again it seems to me that some of our noisiest policymakers, and the folk who slavishly follow their academic musings, have got it wrong, and not surprisingly by being too bearish. I long for the day when the MPC's excessively bullish forecasts are not met, but I am not holding my breath. Some might argue that it is the job of those burdened with making these decisions to err on the side of caution. I disagree. Their job is to make accurate, balanced forecasts about the direction of the economy and to set policy rates appropriately for those conditions. Data and judgement are crucial in this process, and the Bank of England, supposedly, has the best data and the best minds to do the job. So why do they keep getting it wrong, and arguably worse, why are they so consistently wrong in the same direction?

I have long argued that there appear to be errors in the Bank's models, and that the huge level of complexity built into them appears to be disabling their ability to forecast accurately what is really going on in the UK economy, as Ben Bernanke highlighted a few years ago. I also believe that academic economists spend far too much time leaning on what economic theory tells them about how the economy will behave, and not enough on a common-sense appraisal of what is actually happening. The result of this somewhat detached, theoretical approach to policymaking is poor judgement, which in my opinion is an enduring characteristic of both the MPC and the OBR. _(Neil in the margin: The former US Federal Reserve chair was commissioned to review the Bank of England's forecasting after its inflation misses; his 2024 report criticised outdated models and infrastructure.)_ _(Neil in the margin: The Office for Budget Responsibility — the independent watchdog that produces the official forecasts underpinning the Chancellor's Budget. Neil's gripe is that, like the MPC, it leans on models over what the data is actually doing.)_

Forecasting is difficult, and I am not suggesting that policymakers should never get it wrong. But the key for me is this: if my favourite economist can do a much better job than the MPC or the OBR from his garden shed, which he invariably does, one can only conclude that there must be something wrong with these extremely well-funded institutions that seem incapable, in forecasting terms, of connecting the banjo with the cow's arse.

Which brings me back to today's vote. Pill and Greene's decision to vote for an increase looks even more odd when set against the Bank's own comment that it believes the UK economy grew by only 0.2% in the first quarter, considerably lower than the ONS estimate of 0.6%. The Bank comments from time to time on its view of "underlying" growth, and from memory did so at about the same time last year. It does not, however, explain why it thinks growth was so much slower than the official estimate, nor why its number is more accurate than the ONS's, or even whether it believes it is. What it does say is that its underlying measure "adjusts for ONS data limitations – statistical noise, revisions and base effects – to extract the true underlying momentum in the economy". Reading that, I would guess it does think its measure is more accurate, although I suspect it is sensitive about highlighting ONS "limitations", something I have been writing about for several years. What we do not know is which number the rate-setting committee actually uses in its deliberations, which is pretty unhelpful. The official line is that it considers both but places stronger emphasis on its own measure, which by the way is compiled using:

- Near-term indicator models

- The output gap framework

- Accounting for residual seasonality

- Probability distribution maps and collective judgement

So, all very accurate and clear then.

Amid all the statistical pseudo-science, the fundamental point is this: the MPC clearly does not believe the UK economy grew at 0.6% in the first quarter and probably has far more faith in its own 0.2% number, or something like an annualised 0.8%. Which begs the obvious question – why are they so obsessed with second-round effects given the very weak economic backdrop, and why aren't they at least thinking about cutting rates?

The answer is that the reality of contemporaneous weak growth, a weak labour market, soft wage data, much lower than expected inflation and the complete absence of ghostly second-round effects appears to have little impact on the MPC's thinking. Instead, it seems anchored far more on what theoretical economics says about energy price "shocks", on what other central banks are doing, and on its own preoccupation with monetary policymaker virility signalling. I noticed the press release couldn't resist trumpeting the fact that the "committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term". Not one word about the fact that inflation in May was 0.5% below its April 30th forecast of 3.3%, nor much emphasis on the fact that the committee lowered its estimate of peak inflation in Q4 this year from 3.6% to 3.25%, which is still too high. Nor any acknowledgement that, on its own projections, inflation is on track to reach 2% in Q3 next year, which I would suggest comfortably meets the definition of medium term. My own view, for what it's worth, is that inflation falls to 2% rather quicker than that.

My conclusion from the MPC's written commentary is that, despite the customary genuflecting at the inflation god, there is rightly less concern about what is happening to prices in the UK. Perhaps most telling was the statement that "weakness in demand and the labour market was likely to lessen the strength of second-round effects". As I said at the outset, an outbreak of common sense, thankfully. Despite the inherent hawkishness of some members of the committee, I still believe the next move in rates is down, and that a cut may come before the year end. 2027 will see much lower inflation (barring more wars) and several more cuts, possibly to below 3%. That has to be good news for both bond yields and domestic UK equities.