Birmingham Post

Silver lining as inflation predicted to fall sharply next year

- Glynn Jones Glynn Jones, Deputy Agent West Midlands Agency, Bank of England

CONSUMER price inflation has risen significan­tly this year and was just over 10% in September, well above the Bank of England’s 2% target.

There are several reasons why inflation is so high.

The biggest of these is the rise in energy prices as a result of Russia’s invasion of Ukraine.

A rise in the prices of imported goods is another significan­t factor, caused partly by supply chain problems across the world.

Developmen­ts in the UK are also playing a role in pushing inflation up. Companies have increased the prices of goods they sell in response to higher costs.

Additional­ly, the labour market in the UK is extremely tight, with unemployme­nt having fallen to 3.5%. Many of the businesses we speak to on our regular company visits in the West Midlands say they are struggling to fill job vacancies.

This means they are having to offer higher wages to attract workers and they are passing on these higher costs into the prices of the services they provide.

One of the main reasons for the current labour shortage is that fewer people are actively seeking work following the pandemic, sadly in some cases due to long-term sickness.

The resulting inflation is hitting households and families hard, especially as the prices of some essentials such as energy and groceries have increased by more than 10%.

People have less money to spend on other things and this means that the output of the UK economy has started to fall.

It is very important that we get inflation back down to the Bank’s 2% target.

Low and stable inflation is part of the bedrock of the economy, allowing people to go about their daily lives and plan for the future with confidence.

This is why the Bank’s Monetary

Policy Committee increased interest rates at its latest meeting to 3%. In total, since December 2021, we have increased our interest rate from

0.1% to 3%.

We understand that raising interest rates means that people’s mortgage payments are increasing at the same time as prices are rising.

But the impact on everyone would be even worse if the Bank does not take strong action now to bring inflation down.

The Monetary Policy Committee may need to increase interest rates further over the coming months, but it thinks that less is likely to be needed than financial markets predict.

There is a lot of uncertaint­y at the moment, but as things stand, we expect inflation to fall sharply from the middle of next year.

We don’t expect the cost of energy to increase so quickly and the scheme the government recently announced will cap the price of energy bills for households and businesses over the next 6 months.

The prices of other goods should also rise less rapidly as supply problems faced by companies are starting to ease.

And the slowing in households’ demand for goods and services will also lead to a slowing in price inflation.

The Bank’s Governor, Andrew Bailey acknowledg­ed at the recent press conference that “the road ahead will be a tough one.” He added that “the economy will recover. And inflation will fall.”

The impact on everyone would be even worse if the Bank does not take strong action now to bring inflation down

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 ?? ?? The Bank thinks interest rates won’t rise as much as markets predict
The Bank thinks interest rates won’t rise as much as markets predict

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