Governor of the Bank of England Andrew Bailey speaks as he attends a press conference for the Monetary Policy Report August 2023, at the Bank of England in London, Britain, August 3, 2023. Alastair Grant/Pool via REUTERS Acquire Licensing Rights
LONDON, Aug 16 (Reuters Breakingviews) – UK inflation is slowing, according to many metrics. Unfortunately, those are not the ones the Bank of England values the most. Persistent price rises in services mean Governor Andrew Bailey is likely to hike rates again in September and keep them higher for far longer than his European and U.S. peers.
Britain’s headline consumer prices index grew by 6.8% in July, down from June’s 7.9% and the lowest annual pace since February 2022, according to the Office for National Statistics.
Services, though, are yet to join the disinflation party. Prices in that category grew 7.4% in July, faster than June’s 7.2%, due to more expensive restaurants, hotels and airfares. Policymakers keep a close eye on services’ prices and wage growth, which hit a record in the three months to June.
That makes it almost certain that Bailey and his colleagues will raise rates for the 15th consecutive time in September to 5.5%. They might stop there or go for one last hike in November to bring inflation down to the BoE’s 2% target. But unlike his counterparts at the European Central Bank and the U.S. Federal Reserve, who are likely to ease policy in 2024, Bailey may not be able to eye rate cuts for some time yet.
With headline inflation more than double the U.S. rate and above the euro zone’s 5.3% – and political pressure from the government to end Britain’s cost-of-living crisis – Bailey finds himself in an unenviable position: having been the first head of a major central bank to raise rates, he may also be the last to cut them. (By Francesco Guerrera)
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