Andrew Bailey (pictured), governor of the Bank of England
Speaking at a Treasury Select Committee hearing today (21 November), the governor said the market was «putting too much weight on what we see on the current data releases and the fact that we have seen inflation come down quite rapidly».
«That is good news…but we are basically in the same place and saying we are concerned about the potential persistence of inflation as we go through the remainder of the journey down to 2%, and I think the market is underestimating that,» he said.
UK inflation falls to 4.6% in October
Inflation sat at 4.6% in October, down from its level of over 10% the same time in 2022. The UK is «on target» to return to inflation of 2%, Bailey said, but the risk remains that it will stay higher for longer, making the case for holding interest rates at their current level of 5.2% «for an extended period».
By the end of the first quarter of 2024, the central bank expects headline inflation on current projections to fall to 3.8%. But it is forecasting services inflation, which makes up 45% of the inflation basket, to still be at 6.4%.
«Those are the indicators of persistence,» Dave Ramsden, deputy governor of the BoE, told MPs at the hearing.
On 2 November, the Monetary Policy Committee left interest rates unchanged at 5.25% for the second meeting in a row. This followed 14 consecutive hikes from December 2021 to August 2023.
Bailey would not be drawn on when rates might start coming down, but Catherine Mann, an external MPC member, said she would prefer a rate increase.
Mann said: «I see continued price pressures coming through firms' expectations, and they tend to be right. Price pressures will continue to be at 5% or so, throughout nextRead more on investmentweek.co.uk