City is ‘paying too much attention’ to inflation data, says bank governor
The Bank of England governor Andrew Bailey further confused the City yesterday on the future path of interest rates, speculating that inflation could be more persistent than the Square Mile expects.
Although the headline rate of inflation fell to 4.6 per cent in October from 6.7 per cent the month before, Bailey pointed out that domestic price pressures remained strong.
“We are concerned about the potential persistence of inflation as we go through the remainder of the journey down to two per cent. I think the market is underestimating that,” he said during an appearance in front of the Treasury Select Committee.
Markets currently expect the Bank to start cutting interest rates in the summer of next year, with the benchmark Bank Rate expected to stand at 4.5 per cent by the end of 2024.
That forecast came after the Bank’s chief economist, Huw Pill, said markets pricing in a mid-2024 rate cut “didn’t seem unreasonable” last month.
That was swiftly quashed by Bailey, who has said it’s “too early” to talk about rate cuts – which didn’t stop him speculating yesterday that the market was underpricing the possibility of rates staying higher beyond that date due to issues other than headline inflation.
“I really think the market is putting too much weight on the current data releases,” he said.
Rather than focus on the headline rate, the Bank has identified a handful of proxies for domestic inflation, such as services inflation and wage growth.
Jonathan Haskell, an external member of the Bank’s monetary policy committee, suggested that markets “fail to appreciate that we consider a different set of measures” to the headline rate of inflation.