It is almost “guaranteed” that inflation will come down quickly this year, barring another unexpected global event, the Governor of the Bank of England told MPs.
Andrew Bailey said there would be a “very sharp drop” in inflation later this year that would only break if there was another external shock.
The bank said it remains “vigilant” and stressed that there are “significant residual uncertainties” about domestic inflation.
This uncertainty prompted the Bank’s Monetary Policy Committee (MPC) to raise interest rates last week.
The bank is trying to bring inflation back to its 2 percent target and last week raised interest rates for the tenth month in a row. The increase lifted the percentage to its highest level since 2008, from 3.5 percent to 4 percent.
Professor Silvana Tenreiro, external member of the MPC, told the Treasury’s select committee that a fall in inflation is virtually guaranteed.
“Unless there is another major event that we don’t know about, like another energy shock, I think inflation is almost guaranteed to come down,” the economist said.
“We have significantly tightened monetary policy over the past year, and this will have a strong impact on demand and will become a mechanism for lowering inflation below the target level.”
Professor Tenreiro said only about 20 percent of the impact of higher borrowing costs has passed and interest rates should be cut later this year as the UK economy feels the full impact. “The rest is yet to come. In my opinion, the stakes are currently too high,” she said.
Jonathan Haskell, another external member of the MPC, said he remains ready to take “strong action” on persistent inflation.
The bank’s chief economist Hugh Pill said there are some signs of a slowdown in the labor market, but the central bank’s task of tightening monetary policy is not over. “It is imperative that we make ourselves known and do enough to address the potential risks of rising inflation,” he said.
Defending the bank’s inflation performance, he said: “We’re not perfect, but we got the important questions right.”
The persistent inflation warnings were echoed by Graham Pitketley, chief financial officer of Unilever’s consumer products group.
The London-based company, which owns brands such as Fairy dish soap, Dove soap, Marmite soap and Ben & Jerry’s ice cream, expects price increases to continue into 2023.
Price increases will continue into the second half of 2023, he said: “But it will be lower growth rates. We have probably passed the peak of inflation, but not the peak of prices.” Underlying price growth in the fourth quarter was a record 13.3 percent, the company said.
Source: I News
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