UK (Commonwealth) _ The Bank of England warns that inflation is still being “underestimated” by markets, and that it is prudent to maintain interest rates unchanged.
The Bank of England’s governor has cautioned that financial markets are putting “too much weight” on the latest UK inflation numbers and should be concerned about the potential of price persistence.
According to Andrew Bailey, the dramatic decline in UK inflation in October was “good news,” but market predictions of how quickly inflation will fall are overly optimistic. “We have concerns about the possibility of longevity of inflation as we continue down the road to 2%,” he told the Treasury Committee. “And I believe the market has overlooked that.”
Interest rate reduction have been priced into markets as early as May of next year, although the Bank of England has tempered such expectations. While the peak seems to have been achieved, Bailey predicted that rates would stay high for a “extended period.” On Monday, Bailey stated that it was “far too early to be thinking about rate cuts.”
At the same hearing, BoE deputy governor Dave Ramsden stated, “We are… being very clear in distancing ourselves from market expectations.” Ramsden stated that he “would not rule out” more rate rises and that a restrictive policy stance would be required for a lengthy period of time. MPC member Catherine Mann, who has frequently voted for steep interest rate hikes, told MPs that “more tightening is needed to cement our commitment to the 2% target.”
Threadneedle Street held interest rates steady for the second time this month, after 14 straight hikes to combat inflation, which is expected to reach 11% in October 2022. Bailey also stated that the UK will not experience another drop in inflation like the recent one.
We’re not going to have another one like last week, he said, since it was the last of those basic effects to come through. According to official estimates, inflation fell to 4.6% in October from 6.7% in September. The Bank of England anticipates that inflation will not recover to 2% until the end of 2025.
Despite the uncertain economic circumstances, ailey told that policymakers are “not seeing a collapse” in credit demand or supply. He stated that both the business and household sectors are currently showing symptoms of slight increases in arrears and some deterioration in loan demand, although only at a low level.
It is not witnessing a collapse in either credit demand or the banking system’s ability to issue credit. We keep the quantitative tightening under regular evaluation, but so far I have not seen anything that gives me cause for concern in terms of an impact on wider credit conditions or the health of the business or consumer sectors.
Inflation in the United Kingdom fell to a two-year low of 4.6% in October, thanks to lower gas and electricity costs, raising optimism for interest rate reduction this summer.
The consumer price index (CPI) in the United Kingdom fell to 4.6% in October, down from 6.7% in September. It is the slowest rate of price rises in two years, and the larger-than-expected drop could bring some respite to UK consumers struggling with the expense of living.
According to Alice Haine, personal finance analyst at investment platform Bestinvest, softening inflation is good news for households because it means incomes are less stretched than they have been, but a drop in the headline rate does not mean prices are falling, just that they are rising more slowly than in previous months.
After the current energy regulator Ofgem price cap went into effect, the inflation number dropped considerably, restricting typical home energy costs at £1,834.
