Bank of England governor Andrew Bailey predicts drop in inflation allaying recession fears
UK inflation is set to drop markedly for October amid continued efforts to tackle the higher cost of living, the governor of the Bank of England has said.
Andrew Bailey indicated inflation will return to its recent pattern of slowdowns after the Office for National Statistics (ONS) recorded a surprise pause last month, leaving inflation at 6.7 per cent in September.
The Bank of England previously forecast that Consumer Prices Index (CPI) inflation would hit 4.9 per cent by the end of the year.
This comes after new forecasts from the EY Item Club predicted the UK will avoid a recession despite the impact of the Bank of England’s interest rate hikes.
Earlier in the week however, Huw Pill, the Bank of England’s chief economist, signalled that interest rates would remain higher for longer to tackle the danger of “persistent” inflation.
Inflation is expected to fall significantly this month due to a comparison against sharp energy price increases seen over the same month last year.
Bailey, on a visit to Northern Ireland, told the Belfast Telegraph that he expected this to drive a “noticeable drop” in the inflation rate.
He stressed that Wednesday’s higher-than-expected headline inflation rate had not set the central bank’s efforts to bring inflation down off course.
“It was not far off what we were expecting,” Mr Bailey said.
“Core inflation fell slightly from what we were expecting and that’s quite encouraging.”
The governor of the Bank however highlighted that wage inflation will need to come down significantly in order for inflation to come back towards the Bank’s two per cent target rate.
On Tuesday, the ONS reported that wages outpaced inflation for the first time in nearly two years with 7.8 per cent growth in the three months to August.
This means wages were 0.7 per cent higher once CPI inflation is taken into account.
On Friday, Mr Bailey said: “Pay growth as measured is still well above anything that’s consistent with the (inflation) target.
“I understand, though, that people will want to see the evidence that inflation is coming down. I think we can see that evidence.”
Press Association – Henry Saker-Clark