Money

Incoming BoE boss will have time to settle in despite rising inflation | Larry Elliott


Gordon Brown always used to joke that there were two kinds of chancellors: the ones who failed and the ones that got out in time. With Mark Carney only a month away from ending his stint at Threadneedle Street, the question is whether the same principle applies to Bank of England governors as well.

When Carney arrived at the Bank in 2013, official interest rates were 0.5%. He leaves with them only a quarter of a point higher, at 0.75%. So will it fall to his successor, Andrew Bailey, to preside over the long-anticipated tightening of policy?

On the face of it, the answer is yes. The government is planning an expansionary budget on 11 March. A 6.2% increase in the minimum wage comes into force in April. House prices are back on the rise across the country. And, according to the latest official figures, the annual inflation rate rose sharply last month – from 1.3% to 1.8%.

Despite all that, Britain is not in the early stages of a traditional wage-price spiral. For a start, there were a couple of one-off factors that pushed up inflation in January. There was a jump in the price of oil – now reversed as a result of the coronavirus – and the falls in energy prices in January 2019 were not repeated.

Moreover, there’s not much sign of inflationary pressure in the pipeline. Wage pressure is easing and the price of goods leaving factories is rising by only 1.1% a year.

There are two other factors to bear in mind. The first is that an already struggling global economy is being dealt a fresh blow by the coronavirus. The second is that the pound is at its strongest against the euro since the Brexit vote in the summer of 2016. Although that has more to do with the current weakness of the single currency than confidence in sterling, it will help to keep the lid on inflation by making imports cheaper.

Bottom line: inflation will fall in the coming months, giving Bailey time to play himself in before even needing to think about raising rates.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.