Mark Cudmore's reaction to inflation
The Bank of England is facing renewed criticism after making a wildly wrong inflation prediction last month.
In its quarterly report after deciding to stick with the current high-interest rate level, the bank said it expected inflation to fall to 4.5 percent in the final quarter of 2023.
However official figures out this morning showed a much more significant fall in inflation, to just 3.9 percent.
The disparity has once again highlighted the Bank’s overcautiousness in both hiking interest rates over the last year, and refusing to reduce them last month.
Governor Andrew Bailey’s economic boffins also predicted inflation would fall to just 3.1 percent by Quarter 4 of next year, though today’s lower figures make that look even more pessimistic.
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The Bank of England is once again under fire (Image: Getty)
The Bank’s response to the inflation crisis has seen Mr Bailey come under renewed criticism, with yet more piling on this morning.
Top economist Julian Jessop pointed out that today’s sharp fall in inflation demonstrates that UK CPI continues to mirror the equivalent US rate very closely, albeit with a six-month delay.
Using that same measure, UK inflation should hit the 2 percent target by the first half of next year, despite the Bank of England continuing to insist Jeremy Hunt won’t reach that milestone until late 2025.
If proved correct, it could mean the Bank of England’s forecasting sees hard-pressed Brits have to put up with overly high interest rates for much longer than necessary.
Mr Jessop also said today’s much better-than-expected inflation data makes the banks’ fears about ‘second-round effects’ and wage-price spirals “look even more misplaced”.
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Tory MP John Redwood also criticised the Bank of England (Image: Getty)
The Economics Fellow at the free market think tank, the Institute of Economic Affairs, said: "The sharp fall in inflation in November makes the Bank of England’s position on interest rates look even shakier. Almost every leading indicator has been pointing firmly downwards for some time, notably the monetary aggregates, but some on the Monetary Policy Committee still want to raise rates further.
"In reality, inflation is well on track to hit the MPC’s two per cent target in the first half of 2024, which would be at least a year earlier than the Bank has been forecasting. Deflation is now the bigger risk and interest rates are too high.
"Unfortunately, the Monetary Policy Committee has continued focus on hypothetical ‘second-round effects’ and ‘wage-price spirals’. But with pay pressures now easing too, the MPC will soon run out of reasons not to cut rates. The longer the Bank waits, the greater the risks that the economy is tipped into a recession that is wholly unnecessary to bring inflation down."
Senior Tory MP Sir John Redwood also piled in on the bank, pointing out that yesterday’s speech by the deputy governor had denied they “helped cause the inflation and shrugged off their forecasting errors”.
He said: “No mention of the damaging sales of bonds at big losses. No clear forecast of what will happen to inflation.”
The Financial Times’ economic commentator Chris Giles added that the Bank of England “might be regretting ignoring all the evidence in its meeting last week” and accused them of being “asleep” about the reality of inflation.
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William Clouston, leader of the SDP, said he hopes today’s news now finally moderates “hawks” at the Bank of England who are “behind the curve”.
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He demanded no more interest rate rises.
Today’s news will heighten hopes for interest rate cuts in 2024, with Work and Pensions Secretary Mel Stride suggesting the fall in inflation could allow the Bank of England to ease interest rates.
He said: “Those are matters for the independent Bank of England, they are not for me to predict, but if inflation comes down faster than expected, then that does take some pressure off the Bank of England in terms of keeping interest rates higher, which of course in time and in turn feeds into mortgage rates.”
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