- Bailey expects a “notable drop” in the overall rate with October figures
- The comments come after official figures showed inflation stagnating at 6.7%.
- Concerns about inflation have rattled global markets over the past week.
Andrew Bailey yesterday praised “quite encouraging” progress in tackling inflation, despite fears it was proving difficult to overcome.
The Bank of England governor said he expected a “notable fall” in the headline rate when October figures are published next month due to lower energy bills.
The comments came two days after official figures showed inflation was stuck at a persistently high 6.7 percent, adding to speculation that further interest rate increases would be necessary.
Encouraged: Andrew Bailey said he expected a “notable drop” in the overall tariff when October figures are published next month due to lower energy bills.
Concerns about the prospect of rates staying high for longer, as well as the impact of the conflict in the Middle East, have roiled global markets over the past week.
Yesterday, in the latest bout of turbulence, UK 30-year bond yields (the return investors expected on borrowing from the government over that period) hit a new 25-year high.
But Bailey, in an interview with the Belfast Telegraph, seemed optimistic about the latest inflation figures, which were expected to show a fall to 6.6 per cent.
He told the newspaper that the Bank did not expect “many changes” anyway.
“It wasn’t too far off from what we expected,” Bailey said.
He also highlighted that a measure of so-called “core” inflation, which excludes volatile factors such as energy and food, had fallen from 6.2 percent to 6 percent.
“Core inflation fell slightly from what we expected and that’s quite encouraging,” Bailey said. The Bank, which is tasked with reducing inflation to a target of 2 percent, has previously forecast it will fall below 5 percent by the end of the year.
Wages, which are growing at 7.8 percent – a near-record pace – remain a cause for concern over fears they could fuel further price increases.
“Measured wage growth is still well above anything that would be consistent with the target,” Bailey said. ‘I understand, however, that people will want to see evidence that inflation is coming down. I think we can see that evidence. “I think by the end of the year we will see more evidence of that.”
The comments came at the end of another scary week for global markets, which has seen sharp falls in UK, European and US shares.
Part of the anxiety is due to the conflict in the Middle East, which has driven up oil prices over fears of a supply disruption if the war spreads.
That could harm the battle against inflation and slow global growth. But even before the violence erupted, concerns about America’s public finances – amid the repeated threat of a government shutdown and soaring debt – have fueled a global sell-off of long-term 30-year bonds. Bond yields rise as prices fall.
Comments on Thursday from US Federal Reserve chief Jerome Powell – who said signs that inflation had already begun to fall were “just the beginning” – did little to calm the feverish state of the markets.
Richard Hunter, head of markets at Interactive Investor, said: “Investors were somewhat taken aback by Powell’s comments, which appeared to waver between implying no further rate hikes in the immediate future and yet leaving the door open for future increases if circumstances dictate.” ‘
Oil is approaching $94
The price of oil rose to $94 a barrel as tensions rose in the Middle East.
Crude oil hit a high of $93.79 as it racked up a second week of gains since the deadly attack on Israel by Hamas terrorists.
Before the October 7 attacks, oil was around $84, having reached $97 late last month.
The price of crude oil has increased due to fears that the Palestinian-Israeli crisis could spread to the Middle East and disrupt the supply of one of the most productive regions in the world.
Craig Erlam, senior market analyst at Oanda, said: “The possibility that the war between Israel and Gaza could extend further is making traders nervous and adding a significant risk premium to oil prices at a time when the market is already extremely tight.”
“Traders fear that the weekend’s events will cause a shocking price move at the opening, which explains the moves we are seeing today.”