Jump in inflation should not delay further rate cuts, says Julian Jessop
20 November 2024
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8 December 2024
Commenting on the rise in inflation to 2.3% in October, IEA Economics Fellow Julian Jessop said:
“UK inflation rebounded a little more than expected in October, to 2.3%, as a tick up in the ‘core’ measure added to the upward pressure from higher energy bills.
“However, the increase in the ‘core’ measure was largely due to higher airfares – an erratic component which the Monetary Policy Committee should look through.
“The Bank of England was also already expecting headline inflation to average 2.4% in the fourth quarter of this year when the MPC cut rates earlier this month.
“Nonetheless, today’s news will add to nervousness about the outlook for inflation in the first half of next year, when the main impact of the increases in taxes and other business costs in the Budget will kick in.
“The Bank expects the Budget measures to lift inflation above 2.5%, taking it further away from the MPC’s 2% target. But this increase should only be temporary and may not materialise at all, particularly if the main impact of the Budget is actually to undermine confidence and growth.
“In any event, the current official interest rate of 4.75% is still higher than it needs to be to continue bearing down on inflation, especially when the full effects of past monetary tightening have yet to feed through.
“If anything, the Bank of England should step up the pace of easing. But at the very least the MPC should stick to the current path of ‘gradual’ rate cuts.”
ENDS
“UK inflation rebounded a little more than expected in October, to 2.3%, as a tick up in the ‘core’ measure added to the upward pressure from higher energy bills.
“However, the increase in the ‘core’ measure was largely due to higher airfares – an erratic component which the Monetary Policy Committee should look through.
“The Bank of England was also already expecting headline inflation to average 2.4% in the fourth quarter of this year when the MPC cut rates earlier this month.
“Nonetheless, today’s news will add to nervousness about the outlook for inflation in the first half of next year, when the main impact of the increases in taxes and other business costs in the Budget will kick in.
“The Bank expects the Budget measures to lift inflation above 2.5%, taking it further away from the MPC’s 2% target. But this increase should only be temporary and may not materialise at all, particularly if the main impact of the Budget is actually to undermine confidence and growth.
“In any event, the current official interest rate of 4.75% is still higher than it needs to be to continue bearing down on inflation, especially when the full effects of past monetary tightening have yet to feed through.
“If anything, the Bank of England should step up the pace of easing. But at the very least the MPC should stick to the current path of ‘gradual’ rate cuts.”
ENDS
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