Risk of ‘persistent inflation' could affect rate cuts, says Bank economist
It came a day after the Bank's rate-setting committee voted to reduce the base interest rate to 4% from 4.25% – its lowest level for more than two years.
The Bank has used elevated interest rates in a bid to bring inflation sustainably down to the 2% target rate set by the Government, after inflation spiked in 2022.
Chief economist of the Bank of England Huw Pill said action is being taken to bring down inflation (Bank of England/PA)
Latest figures from the Office for National Statistics (ONS) showed that UK CPI (consumer price index) inflation rose to 3.6% in June.
On Thursday, the Bank said inflation is likely to rise to 4% in September before steadily falling and stabilising around 2% in 2027.
In his briefing on Friday, Mr Pill indicated there could be more interest rate cuts but said heightened risks regarding inflation could affect this.
He said: 'There is some shift in the balance of risks on inflation. There is a risk of spillover into more persistent inflation.
'When inflation is high due to external forces, we need to be aware of the risk they might affect domestic price-setting.'
The Bank of England indicated that recent increases to the national minimum wage and National Insurance contributions had partly contributed to a recent uptick in food prices.
Mr Pill stressed the Bank will continue to act to sustainably bring down inflation but added that there is 'no set path' for interest rates.
He said: 'Our mandate is that we will get inflation to 2%, that's the target, on a sustainable rate. We will do whatever we need with the Bank rate to do that
'They may be a bit lower than where we are but nothing is set.'
Financial markets are currently expecting one more rate cut this year, before another cut next year, with interest rates likely to stabilise close to 3.5%.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Mail
5 minutes ago
- Daily Mail
Big Four banks make major call following RBA interest rate decision
All four major banks have announced an interest rate cut, providing welcome relief for borrowers following the Reserve Bank of Australia cutting the cash rate. The central bank on Tuesday cut the cash rate by 25 basis points to 3.6 per cent, but flagged the end to its easing cycle is getting closer. Macquarie Bank was first out of the gate, confirming it will pass on the full cut to customers from Friday. Australia's other major banks have also confirmed they will pass on the RBA's full 0.25 percentage point cut to their standard variable home loan rates. ANZ and CommBank will both implement the reduction from August 22, while NAB customers will see the change take effect on August 25. Westpac will be the last of the Big Four to introduce the rate cut on August 26. All nine board members voted in favor of a cut and there was no discussion of a jumbo 50 basis point cut, Ms Bullock said. The RBA's decision will save borrowers with a $600,000 mortgage almost $90 a month in repayments and a cumulative $272 per month since cuts began in February. The move brings the cash rate to its lowest level since May 2023, with the average variable mortgage rate expected to fall to 5.5 per cent. But for many borrowers, the financial boost was behind estimates. Most economists had expected the RBA to deliver rate relief in its July meeting. In a shock 6-3 decision, the board kept rates on hold, citing a need to wait for more inflation data to ensure price growth was coming down sustainably to target. The local share market lifted modestly and the Aussie dollar fell following the decision, while money markets were pricing in two more cuts by March. Vanguard senior economist Grant Feng predicted one more cut by the end of 2025, as growth showed signs of recovery and the unemployment rate stabilizing. Treasurer Jim Chalmers said the decision was 'very welcome relief for millions of Australians'. 'The three interest rate cuts we've seen this year would not have been possible without our collective efforts to get inflation down,' he said. The RBA has just cut interest rates for the third time in six months. Today's quarter of a percentage point cut brings the cash rate to 3.60 per cent and will make a meaningful difference to millions of mortgage holders around the country. In quarterly forecasts produced by RBA staff and released alongside the cash rate decision, productivity growth was revised down by 0.3 per cent over the medium term. That would flow through to lower GDP growth, lower living standards and make it harder to get inflation under control.
Telegraph
2 hours ago
- Telegraph
Older workers are being sent to the scrapheap
At long last, Rachel Reeves has an economic success story. One sector in Britain is displaying dizzying growth, with demand soaring year on year: the number of people claiming Universal Credit without work requirements has risen from 2.7 million last July to 3.7 million. While some portion of this growth will be explained by migration between benefits as the Government shifts claimants to Universal Credit, that cannot be seen as exculpatory. Certain claimants moving on to Universal Credit from legacy benefits can do so without a need for any fresh reassessment of their ability to work. While this will help to streamline the transfer and ensure those who need support receive it, it is a missed opportunity to look at the existing group of claimants and to reassess their fitness for work. Such an approach is sorely needed. At the moment, attention is directed towards the flow of new claims for welfare, but relatively little towards tackling the stock of existing claims, and seeing whether some may have left the workforce prematurely. Attention, moreover, does not mean action. The furious row over the relatively minor changes to disability benefits proposed earlier this year resulted in a Government climbdown, and the emboldening of backbench rebels against further potential cuts. As a result, we continue to see the numbers parked on benefits with no requirement to seek work soar, with many older workers now in what appears to be a form of tacit early retirement. This is a waste of their talents and experience that Britain can ill afford, and one which is all the more infuriating given the lay of the land internationally. A little over a year ago, the Minneapolis Federal Reserve Bank published a fascinating analysis on the remarkable shifts in the US workforce, with significant rises in employment rates for the over 55s. Older Americans were better educated and healthier than previous generations, and as a result willing and able to work longer. In Britain, in contrast, we are facing a health and disability benefits bill expected to rise to £100bn a year by the end of the decade, with minimal means of shifting workers off claims once they begin. It would be greatly to the benefit of the nation and the public finances if Westminster could bring itself to learn from Washington in this field.
Reuters
2 hours ago
- Reuters
US deficit grows to $291 billion in July despite surge in tariff revenue
Aug 12 (Reuters) - The U.S. government's budget deficit grew nearly 20% in July to $291 billion despite a $21 billion jump in customs duty collections from President Donald Trump's tariffs, with outlays growing faster than receipts, the Treasury Department said on Tuesday. The deficit for July was up 19%, or $47 billion, from July 2024. Receipts for the month grew 2%, or $8 billion, to $338 billion, while outlays jumped 10%, or $56 billion, to $630 billion, a record high for the month. The month of July this year had fewer business days than last year, so the Treasury said that adjusting for the difference would have increased receipts by about $20 billion, resulting in a deficit of about $271 billion. Gross customs receipts in July grew to about $28 billion from about $8 billion a year earlier due to higher tariff rates imposed by Trump, a Treasury official said. This data builds on tariff-related momentum in the past couple of months, as companies importing goods paid those duties. For the first 10 months of the fiscal year, the Treasury reported a $1.629 trillion deficit, up 7%, or $112 billion, from the same period a year earlier. Receipts were up 6%, or $262 billion, to $4.347 trillion, a record high for the 10-month period, while outlays grew 7%, or $374 billion, to $5.975 trillion, also a 10-month record.
