The Bank of England's governor Mark Carney said today that inflation would keep rising a little while longer, after it was revealed this morning that the Consumer Prices Index (CPI) hit a five-and-a-half year high of three per cent.
Grilled by the House of Commons Treasury Select Committee, Carney stuck by the Bank of England's revised estimates that inflation would peak in October or November this year.
But the governor also said that the Bank had been right to cut interest rates in the aftermath of the Brexit vote, as this had “supported the adjustment in the economy”.
“Inflation rising potentially above the three per cent level in coming months is something that we have anticipated,” Carney told the panel headed by MP Nicky Morgan, adding that the acceleration was "solely" due to the fall in the value of sterling.
“As a consequence we faced a trade-off – and we still face a trade-off – between having inflation above target and the need to support, or the desirability of supporting, jobs and activity.”
The CPI data this morning revealed that prices of consumer goods, boosted by food and transport, are climbing at their highest rate since 2012.
This may give the Bank added confidence for raising interest rates for the first time in more than a decade before the end of the year.
Carney gave no further detail on when this might come, but reiterated that it was on the mind of the monetary policy committee and most members thought a raise “over the coming months may be appropriate”.
Touching on Brexit
Brexit was also a hot topic in the committee's meeting, as Carney warned against moving clearing out of London. He added that fragmenting the European clearing system would “create costs for the European real economy”.
The Bank of England is making plans for a “hard” Brexit, he noted, but was still hoping for a transitional deal. Continental European institutions however, according to Carney, are less prepared for a sudden departure of the UK from the EU.
Carney added that a “material change in political circumstances”, perhaps such as a Brexit no-deal, could change the Bank of England's forecasts for the UK economy.