Written by Patrick Thohir
Updated: 08:55 17 December 2023
Bank of England Governor Andrew Bailey faces another test of his credibility this week when new figures are expected to show that inflation has been tamed.
The inflation rate is expected to fall to 4 percent in November. This is down from the peak of 11.1 percent last fall after the Russian invasion of Ukraine.
The bank decided last week to keep interest rates at their highest level in 15 years at 5.25 percent, and warned that borrowing costs would remain high for an “extended period of time” to limit the rise in prices.
Financial markets disagree and expect four or five interest rate cuts next year, with the first in May. Inflation fell sharply as economic growth stalled. It could reach the bank’s target rate of 2 per cent within six months – a year earlier than Bailey forecasts.
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Bailey initially dismissed inflation as “temporary” before embarking on a series of 14 successive interest rate increases. Experts fear that it may be slow to change course again, and that this could lead to a prolonged recession.
Independent economist Julian Jessop said: “The Bank currently lacks the confidence or credibility to cut interest rates until it is certain that inflation is back under control.”
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