BOE's Bailey Sees 'Encouraging' Signs on Inflation

Today we’ve held bank rates at 5.25%. The big global shocks that caused inflation to rise have faded and monetary policy is working to bring inflation back towards the 2% target. Inflation has now fallen to just above 3% and we expect it to be close to the target in the coming months, and that’s encouraging. But we are not yet at a point where we can Cut Bank rates. We all consider the forthcoming data releases as part of our assessments of for how long bank rates should be maintained at its current level, to be sure that inflation will fall all the way back to the 2% target and stay there. So let me start with the outlook. We’ve had relatively few UK data surprises since our previous monetary policy report in February. Economic growth was weaker than we expected in the fourth quarter of last year. But we think the first quarter of this year has been a bit stronger, which will leave the level of economic activity broadly where we thought it would be as expected. 12 month consumer price inflation, which has just come up on chart one, fell from 4% in December to 3.2% in March, its lowest rate since December 2021 Nought .1 percentage points higher than we expected in February. The decline was spread across food, core goods and services. Energy prices have also continued to contribute negatively to the headline inflation rate. And as a lower off gem cap on household energy prices has come into effect in April, we expect headline inflation to drop further to a level very close to target in the next few months. But we then expect it to edge up again in the second-half of the year as the negative contributions for energy prices fade. Now this absence of data surprises is an indication that we’re now getting back to more normal times, at least compared to the highly unusual period we’ve been living through with a global pandemic and a major war in Europe. Risks to the global economy remain, including from the conflicts in the Middle East. But so far economies have adjusted to withstand those risks. Global supply chains have held up and energy prices have moderated.