Signs of peak inflation open door to earlier Bank of England interest rate cuts
Has UK inflation peaked? The latest official figures showing price growth in the UK stayed at 3.8% in September seem to suggest so.The statement cannot be made with absolute certainty yet but many economists reacted to the latest consumer prices index (CPI) data with a message that the only direction for inflation over the rest of the year was down.City economists had expected the Office for National Statistics to report an increase from August’s 3.8% to 4%, and they were in good company – the Bank of England also said inflation would top out at that level last month.
Food retailers had other ideas.They slowed the recent escalation in the cost of essential items, helping to ease the pressure on household budgets.Having focused on food inflation in recent months, central bank policymakers will find themselves under pressure to bring forward interest rate cuts that investors believed were unlikely before next spring.A major rethink could lead to a reduction in the cost of borrowing as early as the Bank’s monetary policy committee meetings in November or December.However, the consultancy Capital Economics said it expected only a modest adjustment to the Bank’s timetable, bringing the decision forward from March to February.
Other economists said a more dramatic shift was possible after clear signs of the economy slowing before next month’s budget,Martin Beck, at the consultancy WPI Strategy, said: “A November move looks off the table, but markets may be overestimating how long the Bank will wait,”He expects CPI inflation to continue falling back towards the 2% target in the first half of next year as the effect of tax and regulated price increases earlier this year drop out of the annual calculation,Adam Deasy, an economist at the accountancy firm PwC, said the Bank would “perhaps want clearer signs that this is indeed the peak before moving further on rate cuts”,He added that while signs of CPI topping out were good news, it “still sits at nearly double the Bank of England’s 2% target, and the UK remains an outlier among major economies; the next highest in the G7 is the US at 2.
9%”,Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionSeveral Bank policymakers have also pointed out that services inflation remains high,The recent figures proved the point, showing this major element of the inflation basket remaining stuck at 4,7%,Food inflation might have slowed but groceries are still 4.
5% more expensive on the year.Rebecca Florisson, the principal analyst at the Work Foundation at Lancaster University, said the rising cost of essentials was “particularly bad news for low-income households”.Using survey evidence from more than 3,600 people, she said a combination of wage stagnation and the cost of living crisis meant only 42% of low-paid workers said their pay was keeping up with costs – compared with 73% of higher-paid workers.Rachel Reeves will want to alleviate this situation in the budget and is due to chair a meeting of cabinet colleagues on Thursday to ask what each department can do to tame inflation.Treasury officials are understood to be considering a cut in VAT on energy costs from 5% to zero.
If that happens, it could knock 0,2 percentage points off CPI,That must make the Bank think again about a rate cute in 2025,
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Rachel Reeves has said that higher taxes on the wealthy will be a part of the story at the autumn budget (Report, 15 October). The government must use this moment to ensure that the super-rich contribute their fair share rather than cutting services that impact the poorest and most marginalised.We all want the same things: thriving communities, good jobs and a future that we can look to with hope. But the rules have been rigged by the super-rich and powerful, allowing them to hoard wealth while the rest of us scrape by. This is fuelling division at a time when people desperately need meaningful change
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Bliss it was in that dawn to be alive, but to be young was very heaven. Just not if you happened to be a schoolkid during the pandemic. Then you were being asked to make the biggest sacrifices to protect elderly people, even though you were the least at risk. Still, I suppose there was a lesson in there somewhere. Almost everyone who comes into contact – however indirectly – with Boris Johnson generally finds they have been done over at some point
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