Bank of England governor warns UK inflation woe being "underestimated"

(Alliance News) - The Bank of England's governor has suggested the threat of UK inflation is ...

Alliance News 21 November, 2023 | 1:31PM
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(Alliance News) - The Bank of England's governor has suggested the threat of UK inflation is being underestimated, as he stressed that Prime Minister Rishi Sunak declaring victory over his inflation target is not to do with policymakers.

Andrew Bailey said the bank's decision-makers are more concerned about the persistence of inflation than the financial markets appear to be.

He told MPs during a Treasury Committee session: "I really think the market is putting too much weight on the current data releases and the fact that we've seen inflation come down quite rapidly – that's good news obviously.

"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."

The UK's annual consumer inflation rate eased to 4.6% in October from 6.7% in September, according to official figures earlier in November.

It prompted the government to claim that it had met its inflation target early, having pledged to bring down the level to below 5.4% by the end of the year.

Inflation will continue to ease, particularly food prices, but not the extent seen last month, Bailey said.

The governor's remarks follow him declaring it is "much too early" to say inflation has been beaten, and to start talking about cutting interest rates.

Members of the Monetary Policy Committee voted to keep rates unchanged at 5.25% earlier this month, keeping them at the highest level since 2008.

The four policymakers attending the session were asked by MP Angela Eagle: "There have been claims in some places that the prime minister personally is responsible for halving inflation, do you agree with that?"

Bailey said: "The government and the prime minister adopted a target, it's not our target, I must be very clear on that.

Asked who is responsible for inflation coming down, he said: "It's very clear, the Bank of England is responsible for that."

Elsewhere in the session, Bailey said the Bank was not seeing a collapse in the supply or demand of credit despite the uncertain economic backdrop.

He told the committee: "For both corporate and household sectors, at the moment, we are seeing some signs of small pick-ups in arrears and some weakening in demand for credit, but from a low level.

"We are not seeing a collapse in either demand for credit or the ability of the financial system to supply credit."

BoE Deputy Governor Dave Ramsden cautioned that inflation in the services sector needs to fall significantly in order for overall inflation to meet its 2% target rate.

He said: "We do think services inflation will subside through next year.

"And it needs to subside through next year because services inflation above 6% is not consistent in getting headline inflation back to the 2% target."

source: PA

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