Thought things might be getting better soon? Not so fast, says BoE
Although the UK’s inflation rate is significantly lower today than what it was a year ago, Bank of England (BoE) governor Andrew Bailey (pictured) has indicated it is unlikely that the central bank will cut interest rates anytime soon.
In an exclusive interview with Newcastle’s ChronicleLive, Bailey stressed that while he is aware of the position of the less well-off in the high interest rate environment, it is important that the inflation rate must drop down to 2%.
“I recognise higher interest rates do have effects,” he said. “They do have effects on mortgage costs, and they also have an effect on rental costs because they feed through.
“What I would say, to be honest, is that if we don’t get inflation down, it gets worse. That’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it’s too soon to have that discussion.”
Annual inflation rate dropped significantly to 4.6% in October – the slowest rate of annual price rises in two years, and down from 6.7% in the prior month. Its recent peak was at 11.1% – a 41-year high – recorded in October 2022.
Bailey said the recent fall was good news, but he was also quick to point out that pulling down the inflation rate to the 2% target would not be easy. He added that by the end of the first quarter next year, inflation may be a bit under 4% and this is still 2% higher than the target.
“The rest of it has to be done by policy and monetary policy,” the central bank governor stated. “And policy is operating in what I call a restrictive way at the moment – it is restricting the economy. The second half, from there to two, is hard work, and obviously, we don’t want to see any more damage.”
Earlier this month, the Bank of England’s Monetary Policy Committee decided to keep interest rates at 5.25% for the second consecutive time, after a string of 14 rate increases aimed at controlling soaring inflation.
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