Buried in the technical minutes of the Bank of England’s meeting was a phrase that signals a massive shift in outlook: “upside risks to inflation had continued to recede.” In plain English, this means the Bank no longer thinks there is a high chance of prices spiraling out of control. This judgment was the foundation for the vote to cut rates to 3.75%.
For two years, “upside risk” was the monster under the bed. It was the fear that energy, war, or wages would send inflation to 15% or 20%. By declaring these risks “receded,” the three key members backing the cut (Bailey, Breeden, Ramsden) are saying the monster is gone.
This allows them to focus on the central forecast, which sees inflation drifting down. It removes the need for “insurance” rate hikes. It suggests that the shocks of the 2020s are finally dissipating, leaving a more predictable economic landscape.
However, the dissenters disagree. They think the monster is still there, hiding in the service sector. They view the “upside risks” of wage growth as very real. The vote split is essentially an argument over whether the monster is dead or just sleeping.
For the markets, this phrase is a buy signal. It suggests that the peak of the interest rate cycle is definitely past. The “receding risk” is the green light for investment, assuming the Bank’s judgment is correct.