On Monday (11 Jul) Andrew Bailey, governor of the Bank of England (BoE), told a parliamentary committee that he expected to see UK inflation fall sharply next year, much in line with the bank’s forecasts from early May.
UK inflation hit a 40-year high of 9.1% in May with the BoE forecasting it would peak at just over 11% in October of this year when the country’s regulated power tariffs are reset at far higher levels.
Mr Bailey estimated that UK inflation would be back to the bank’s 2% target in about two years while pointing out that added household energy spending would likely dampen consumer spending elsewhere. However, Russia’s ongoing manipulation of European gas markets, or more persistent domestic cost pressures, could change that, he warned.
To fight inflation, the BoE has so far raised UK interest rates five times in 0.25% increments, but investors now foresee almost a 70% chance of a 0.5% rate hike on 4 August.