BoE Governor says inflation likely to fall rapidly this year

Inflation drops in UK slightly to 10.5 percent as petrol prices fall

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Governor Andrew Bailey said a rapid fall in the rate from late spring is the “most likely” outcome in the most optimistic assessment since the spike.

Rishi Sunak vowed to get a “grip” on inflation again on Thursday as he ruled out tax cuts in the near future.

The Prime Minister insisted the public understands that he cannot take immediate action because they are “not idiots”.

Inflation dropped slightly to 10.5 per cent in the latest official figures following another small decline in December’s data.

Mr Bailey suggested Britain faces an “easier path” out of recession than predicted with a “long but shallow” contraction.

Interest rates are likely to peak at about 4.5 per cent instead of more than six per cent as had been feared last year.

The bank chief said lower energy prices will help bring down inflation in the coming months.

“What we think is the most likely outcome is that it will fall quite rapidly this year, probably starting in the late spring and that has a lot to do with energy pricing,” he told Business Live during a visit to Wales.

“There was a sort of locked-in level of energy prices over the winter, but we expect it to fall quite rapidly after that.”

Mr Bailey said energy prices have started to come down but the changes have not yet fed through to domestic bills.

He added: “It does mean there is more optimism now that we are sort of going to get through the next year with an easier path there (inflation).”

Energy bills could be hundreds of pounds lower than previously thought in the latter half of this year but only after a spike in the spring, new analysis has suggested.

The average household’s energy bill might hit around £2,200 a year from July, around £300 less than previously thought, experts at Cornwall Insight said.

The governor said growth remains below pre-pandemic levels.

He added: “People always talk about the rapid recovery from the worst of Covid.

“The economy went off a cliff and it came back up some of the cliff, but since then it has been a pretty grinding process.

“That goes along with the fact that we have had a very big real income shock to the country, which obviously affects the situation.

“And working our way through that shock, and the inflationary impacts of that shock, is important. That is why I am afraid, and I know we have been marked down as a pessimist by saying, as we did in November, we think there will be a recession.”

But he said that the recession is expected to be a “shallow one by historic standards”.

Treasury sources said inflation appears to have past the peak but it remains “stubbornly high” and there is still a “long way to go”.

Mr Sunak has made bringing down inflation his top economic priority in the short term.

But he faced renewed pressure from senior Tories and leading business figures to cut taxes and reduce red tape to help kickstart the economy.

Ex-Cabinet minister Ranil Jayawardena said Britain’s growth is lagging behind other nations.

He added: “We’ll only truly get the growth we need if we cut through the statism and red tape that has built up over the last two decades.

“We should not be afraid of a bold plan to cut taxes and grow our economy.”

Mr Sunak said the public understands why he cannot cut tax immediately because they are “not idiots”.

Downing Street later clarified that did not mean the Prime Minister was describing people in favour of tax cuts as idiots.

“He didn’t call anybody an idiot,” a No 10 spokesman said.

Mr Sunak was quizzed about his economic plans during a visit to Morecambe where he took questions from members of the public as well as the press.

“When I was Chancellor I also really preferred it when the Prime Minister didn’t comment on tax policy,” he said.

“I’m a Conservative, I want to cut your taxes … I wish I could do that tomorrow, quite frankly, but the reason we can’t is because of all the reasons you know. You’re not idiots, you know what’s happened.”

He said the pandemic and the war in Ukraine had left the public finances “not where it needs to be”.

Mr Sunak added “it takes a bit of work to get there” but he vowed to make the economy stronger so the NHS and schools can be funded, secure lower interest rates and get a “grip of” inflation.

“Trust me, that’s what I’m going to do for you this year, that’s what we’re going to do while I’m Prime Minister and if we do those things we will be able to cut your taxes,” he said.

Brexiteer businessman Sir James Dyson raised concerns about the direction the government’s approach to the economy.

He said “growth has become a dirty word and an idea too risky to contemplate”, which helped to explain why the economy is “in the doldrums”.

The entrepreneur said the private sector is often “being handicapped” through ever higher tax bills.

Sir James added working from home has “badly damaged the country’s work ethic.”

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