Above-target inflation should not delay the next rate cut, says IEA Economics Fellow
19 September 2024
SUGGESTED
Healthcare
19 September 2024
Media
Economic Theory
11 November 2024
Commenting on new data which show that the rate of inflation remained at 2.2% in August, Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:
“The latest UK inflation data were probably not good enough to tip the balance towards an interest rate cut this week, but the case for another move remains strong.
“The headline rate held at 2.2% in August, sticking above the MPC’s 2% target. The core rate (excluding food and energy) rose from 3.3% to 3.6%, led by a renewed surge in services inflation from 5.2% to 5.6%.
“However, most of the pick up reflected a jump in air fares, which are volatile from year to year depending on the timing of school holidays. Services inflation is also still lower than anticipated in the Bank’s latest Monetary Policy Report. There is little sign of the ‘wage-price’ spiral that some on the MPC fear.
“Headline inflation may spike in the autumn due to the increase in domestic energy bills, but the Bank has already signalled that it will look past this temporary effect.
“The bigger picture is that the economy is slowing again, the labour market is cooling, and interest rates are higher than necessary to continue bearing down on inflation.”
ENDS
Contact: media@iea.org.uk / 07763 365520
Notes to Editors
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
“The latest UK inflation data were probably not good enough to tip the balance towards an interest rate cut this week, but the case for another move remains strong.
“The headline rate held at 2.2% in August, sticking above the MPC’s 2% target. The core rate (excluding food and energy) rose from 3.3% to 3.6%, led by a renewed surge in services inflation from 5.2% to 5.6%.
“However, most of the pick up reflected a jump in air fares, which are volatile from year to year depending on the timing of school holidays. Services inflation is also still lower than anticipated in the Bank’s latest Monetary Policy Report. There is little sign of the ‘wage-price’ spiral that some on the MPC fear.
“Headline inflation may spike in the autumn due to the increase in domestic energy bills, but the Bank has already signalled that it will look past this temporary effect.
“The bigger picture is that the economy is slowing again, the labour market is cooling, and interest rates are higher than necessary to continue bearing down on inflation.”
ENDS
Contact: media@iea.org.uk / 07763 365520
Notes to Editors
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
SHARE
