Inflation has ‘turned the corner’, as rates rise to 4%

Inflation has “turned the corner”, the governor of the Bank of England has said, but he warned that it was still “very early days”. Andrew Bailey made the comments as the bank’s monetary policy committee raised the base interest rate by 0.5 percentage points to 4%. “Since the November monthly report we have seen the first signs that inflation has turned the corner,” Bailey said. Annual consumer price inflation has come down from 11.1% in October to 10.5% in December, which is lower than the bank expected it to be in its November report. “And we think it will continue to fall this year, and more rapidly in the second half of the year,” Bailey added, with the bank predicting a fall to 4% at the end of the year, chiefly due to the fall in gas prices. However, he said services inflation would rise further in the near term. The bank said there would still be a recession, defined by two consecutive quarters of falling growth, but the economy would contract by less than 1% – better than the 3% projection made after September’s mini-Budget. The markets responded warmly to the news, with FTSE 100 stocks rising by 0.7%. Two-year gilt yields dropped by 23bps to 3.2%. The chancellor, Jeremy Hunt, said the impact of the interest rate rise on inflation needed to be supported by the government, effectively ruling out new tax cuts in next month’s Budget. Responding to the bank’s decision, Hunt said: “We in the government must make sure we support them in what I do in the Budget, to make sure that we make it easier, not harder, for them to do what we all want to do, which is to halve inflation.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo by Wiktor Szymanowicz/Shutterstock