Andrew Bailey yesterday hailed ‘quite encouraging’ progress in the fight against inflation despite fears that it was proving hard to beat.
The Bank of England governor said he expected a ‘noticeable drop’ in the headline rate when October’s figures are published next month due to lower energy bills.
The comments came two days after official figures showed inflation was stuck at a stubbornly-high 6.7 per cent, adding to speculation that more interest rate hikes would be needed.
Worries about the prospect of rates remaining higher for longer, as well as the impact of the conflict in the Middle East, have rattled global markets over the past week.
Yesterday, the latest bout of turbulence saw the yield on UK 30-year bonds – the return expected by investors for lending to government over that period – hit a new 25-year high.
Encouraged: Andrew Bailey said he expected a ‘noticeable drop’ in the headline rate when October’s figures are published next month due to lower energy bills
But Bailey, in an interview with the Belfast Telegraph, appeared to be sanguine about the latest inflation figures, which had been expected to show a fall to 6.6 per cent.
He told the newspaper that the Bank had not been expecting ‘much change’ anyway.
‘It was not far off what we were expecting,’ Bailey said.
He also stressed that a measure of so-called ‘core’ inflation – which strips out volatile factors such as energy and food – had dropped from 6.2 per cent to 6. per cent.
‘Core inflation fell slightly from what we were expecting and that’s quite encouraging,’ Bailey said. The Bank, which is tasked with bringing inflation down to a 2 per cent target, has previously forecast that it will fall below 5 per cent by the end of the year.
Wages, which are growing at 7.8 per cent – a near record pace – remain an area of concern for fear that they could stoke further price rises.
‘Pay growth as measured is still well above anything that’s consistent with the target,’ Bailey said. ‘I understand, though, that people will want to see the evidence that inflation is coming down. I think we can see that evidence. I think that by the end of the year, we’ll see more evidence of that.’
The comments came at the end of another hair-raising week for global markets, which has seen sharp declines in UK, European and US stocks.
Part of the anxiety is driven by the conflict in the Middle East, which has pushed up oil prices on fears of supply disruption if the war spreads.
That could damage the battle against inflation and hold back global growth. But even before the violence broke out, worries about America’s public finances – amid the repeated threat of government shutdown and soaring debt – have driven a global sell-off of long-term 30-year bonds. The yields on bonds rise as prices fall.
Comments on Thursday from US Federal Reserve chief Jerome Powell – who said signs that inflation had already started to fall were ‘only the beginning’ – did little to calm markets’ febrile state.
Richard Hunter, head of markets at Interactive Investor, said: ‘Investors were left somewhat bemused by comments from Powell, who seemed to oscillate between implying no further rate hikes in the immediate future, yet leaving the door open for future rises should circumstances dictate.’
