Andrew Bailey remains bullish on inflation despite markets lowering rate cut expectations. Photo: Julia Nihinson/Bloomberg
Andrew Bailey predicted a «big fall» in inflation next month, despite official data showing prices rose faster than expected in March.
Bank of England Governor said inflation was «on track» to fall to 2% within months. driven by cheaper household bills as energy price caps fall.
Official data showed inflation fell to 3.2% in March from 3.4% in February. However, the figure turned out to be slightly higher than economists predicted.
Mr Bailey sought to allay fears that the Bank of England will keep interest rates at 5.25% for longer amid concerns about persistent price increases.
Speaking at an event in Washington organized by the Institute of International Finance, he said: «We're actually pretty much on track to where we thought we'd be [sic] in February.»
This suggests that the Bank's forecast that inflation will fall to its 2% target by the second quarter of the year is still on track.
Mr Bailey added: “Today we are seeing a decline in inflation figures. I expect the figures to show a fairly large fall next month because in the UK we have a particularly unique household energy pricing system.
“So I expect inflation to fall to target. We will see where exactly the goal will be achieved.”
He said policymakers would continue to assess the right time to cut rates «every time» they meet, with the next decision due in just three weeks.
Mr Bailey stressed that “there are still very large risks”, including instability in the Middle East. The bank also expects inflation to pick up again in the second half of the year.
However, it added: “There have been significant changes to the situation in the UK. Thank God, we are experiencing a fairly pronounced period of deflation.”
The Bank of England is expected to cut interest rates twice this year, bringing borrowing costs to 4.75% by the end of 2024. spot traders had expected a fivefold rate cut.
Money markets indicate policymakers may wait as early as August before starting to cut borrowing costs.
Grant Fitzner, chief economist at the ONS, said : “Once again, food prices were the main reason for the decline, with prices rising less than we saw a year ago. Like last month, we saw partial compensation for rising fuel prices.”
The rise in fuel prices is likely to continue amid rising tensions in the Middle East, especially after Iran's recent attack on Israel.
The jump in fuel prices is likely to continue amid rising tensions in the Middle East, especially after the recent Iranian attacks on Israel.
The rise in fuel prices is likely to continue.
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KPMG's Yael Selfin warned that while inflation could soon return to the Bank's 2% target, risks remain high.
Ms Selfin said: “The overall inflation outlook remains broadly positive, but there are several risks that could fail.
Oil prices have risen over the past month, driving up prices at the pump for consumers. In addition, raising the national cost of living could potentially help keep service sector inflation, which remains high.»
Chancellor Jeremy Hunt said the latest fall in inflation was a sign that «the plan is working.» < /p
Mr Hunt said: «Inflation is falling faster than expected, from more than 11% to 3.2%, the lowest level in almost two-and-a-half years, helping people grow further.»
>Separate figures confirmed euro zone inflation fell to 2.4% in the year to March, down from 2.6% in the previous month. This opens the door for the European Central Bank to begin cutting rates in the coming months.
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