‘Persistent inflation’ warning from Bank of England governor

Bank of England (BoE) Governor Andrew Bailey responded to questions from Bank of England Deputy Governor Dave Ramsden, Monetary Policy Committee member Catherine Mann and members of the Treasury Committee of the British Parliament .

Recalling that the country’s Consumer Price Index (CPI) slowed by 4.6 percent year-on-year in October, more than market expectations, Bailey said the decline in inflation was good news but an expected development.

Noting that they expect a further fall in inflation, including food prices, Bailey said: “Beyond this, further falls in inflation will depend on secondary effects. “Wage increases remain high and are not consistent with our 2 percent inflation target.” he said.

DRAW ATTENTION TO THE RISKS OF INFLATION

Bailey noted that despite the decline in inflation, upside risks remain: “The first of these is that the risks to domestic inflation dynamics remain high, and wage increases are among them. Another risk may arise from the impact of tensions in the Middle East on oil prices. Oil prices may rise due to geopolitical tension. It hasn’t happened yet, but if there is a broader regional conflict, it may be reflected in prices. “Markets are underestimating the risks of persistent inflation,” she said.

Bailey said the view to maintain the policy rate at the current level is therefore logical.

Bailey also stated that the bank will reach its 2 percent inflation target and that this level is the “operational definition of price stability,” calling opinions in favor of raising the inflation target to “bad arguments” 3 percent.

‘THE MARKET UNDERESTIMATES THE RISKS’

Bailey assessed that we are facing a panorama that shows that demand in the country is gradually slowing down.

Bank of England Vice President Ramsden reiterated that the bank is concerned about persistent inflation, saying: “We believe inflation will fall to 3.8 percent by the end of the first quarter of 2024. This is good news, but we predict that the Service sector inflation will remain at 6.4 percent. “These are all indicators of persistent inflation and the points we focus on when determining the policy rate,” he said. (AA)