In the UK, Bank of England Governor Andrew Bailey has indicated that persistent inflationary pressures, especially from rising food and energy costs, may require further interest rate increases. Speaking at today’s National Farmers’ Union meeting, Bailey cited climate-related crop failures and geopolitical tensions in the Middle East as contributing factors to higher prices.
Despite the marked decline in overall inflation from October’s peak of 11.1% to 4.6%, Bailey stressed the need for continued vigilance. The central bank governor acknowledged that although food price inflation has risen to nearly 20 per cent, there is no immediate plan to cut interest rates due to persistent inflation within the services sector and wage growth pressures caused by large increases in food costs since the start of the pandemic. He predicted that food price inflation, which remains above 10 percent, will fall to around 3 percent by March next year. Despite these discussions, Bailey’s comments appear to have had a limited impact on currency markets, with the pound holding around the 1.2500 mark against the US dollar following his remarks. .
“If we maintain this position long enough, we will take inflation out of order. That’s what we’re going to do.” This could mean raising interest rates again, he said, if inflation proves to be more stable. He added that interest rates should be restrictive “for some time now.” “Let me be very clear: it’s too early to think about cutting interest rates,” Bailey said. will fall to around 3 percent by March next year. Despite these discussions,
Sterling rises as Bank of England Governor comments on interest policy await
The pound rose slightly at the beginning of the week. In the North America session, the GBP/USD is trading at 1.2495, up 0.27%. The pound started an excellent week, rising 1.93%.
It’s a very light data calendar for Monday, with no major UK or US releases. We will hear from Bank of England Governor Bailey later and markets will be looking for some clues about future interest rate policy.
On Tuesday, Bailey will testify before the Treasury Committee of Parliament. To be sure, lawmakers will pressure the governor on interest-rate policy, given that inflation is falling. There is growing speculation that the Bank of England has ended the current tightening cycle and will cut interest rates sometime in mid-2024, possibly as early as May.
The Bank of England holds its next meeting on December 14, and markets widely expect the central bank to maintain interest rates, after pausing in the last two meetings. Governor Bailey and his colleagues have insisted that rate cuts remain elusive, and the MPC said at its November meeting that interest rates should remain higher for longer.
Inflation fell to 4.6% in October, compared to 6.7% in the previous month. The decline was driven by lower energy prices, which helped bring inflation below 5% for the first time in two years. The decline in energy prices did not affect the core consumer price index, which also fell from 6.1% to 5.7%.
The US will release the minutes of its November meeting on Tuesday. At the meeting, the Fed paused for the second time in a row, and markets set another stop at the December meeting of almost 100%, with expectations of a rate cut in mid-2024.
Bank of England warn: inflation remains high and talk of cutting interest rates is early
The governor of the Bank of England has warned that it is “premature” to say inflation has been overcome, despite figures last week showing that the prime minister’s target of halving inflation has been met. Andrew Bailey, a member of the interest rate body, said inflation was still “very high”.
Inflation figures last week showed that prices of a range of goods and services rose by 4.6% in the 12 months to the end of October. The reading, called consumer price index (CPI) inflation, was the lowest in two years.
After the figures were released, Prime Minister Rishi Sunak said he had halved inflation, one of the five main priorities he set at the start of the year. Economists had already expected inflation to more than halve when Sunak pledged. While Sunak wanted to halve inflation from nearly 11% at the start of this year, the bank’s actual target is 2%. In a speech, Bailey said it was too early to say inflation had been overcome, and it was too early to start talking about cutting interest rates. The bank has raised interest rates over the past two years in a bid to help control inflation. “Although last week’s October inflation data was good news, it is too early to declare victory,” he said.
“Inflation is still very high and we need to make sure it reaches the 2% target.” Bailey said the bank’s interest rates are currently “restricted,” meaning they help lower inflation.
Wage deals rise in the UK public sector, but the private sector remains steady
British employers’ salaries rose in the three months to October thanks to higher public sector payrolls, but private sector wage deals – which the Bank of England is watching closely – remained stable, a survey showed on Tuesday.
Human resources bulletin and data provider XpertHR said average core wage deals in the three months to the end of October rose to 6% from 5.5% in the previous quarter, corresponding to an all-time high in the series.
In the public sector, average wage deals rose to 6.5% from 4% a year ago, the highest reading since 1991 and higher than the private sector average of 6%.
The Bank of England is unlikely to worry too much about rising public wage deals because it focuses more on wages in the private sector, and is more vulnerable to changes in monetary policy.
A survey by the Chartered Institute of Personnel and Development (CIPD) last week also showed strong intentions on public sector pay, albeit after years of real-term wage cuts in many occupations. XpertHR’s October figures were based on 26 payments, well below average.
Official data last week showed a slowdown in average weekly profit growth in the three months to September, which was welcomed by Bank of England officials although they also said it remained very high. The central bank stopped raising interest rates in September, raising hopes that this increase has now peaked. Mortgage lenders have responded by lowering interest rates on home loans – which have risen as the bank’s interest rate has risen.
