- Bailey faces credibility test
- Inflation expected to decrease
- Market anticipates interest rate cuts
This week, Bank of England governor Andrew Bailey faces another credibility test as fresh data suggests inflation is being contained.
In November, the inflation rate is expected to decrease to 4%.
This marks a decline from its peak of 11.1% in the autumn of 2014, following Russia’s invasion of Ukraine.
To curb price increases, the Bank maintained interest rates at a 15-year high of 5.25% last week, warning that borrowing costs will remain elevated for “an extended period.”
In contrast, financial markets anticipate four to five interest rate cuts over the next year, with the initial reduction as early as May.
Inflation has significantly decreased alongside the sluggish economic expansion. It may reach the Bank’s 2% target in less than six months, a year earlier than Bailey predicted.
Bailey initially considered inflation “transitory” before implementing fourteen consecutive rate hikes. Concerns arise that he may hesitate to change course again, potentially leading to a prolonged decline.
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Independent economist Julian Jessop suggests the Bank currently lacks the credibility and confidence to reduce interest rates until inflation is once again under control.
