Output growth has been robust and business surveys point to continued expansion. Although the housing market remains buoyant, there are now signs that it is starting to ease, and the growth of consumption may be moderating. Investment and public sector consumption have both grown strongly and demand in UK export markets continues to pick up.

CPI inflation reached 1.6% in June. It is likely to fall back in the near term, but underlying cost pressures have risen. With demand already high relative to the supply capacity of the economy, continued strong growth is likely to lead to rising inflationary pressures. Against that background, the Committee judged that an increase of 0.25 percentage points in the repo rate to 4.75% was necessary to keep CPI inflation on track to meet the 2% target in the medium term.

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