Bank of England boss Andrew Bailey’s credibility under close scrutiny again as latest inflation and jobless data set to be released
The Bank of England’s rickety forecasting record will come under close scrutiny this week when the latest inflation and jobless data are released.
Governor Andrew Bailey has lost credibility on the markets and among politicians after his ‘apocalyptic’ forecasting of UK prospects. The Bank projects inflation will surge to 13.3 per cent this autumn and that we will suffer five quarters of recession starting this summer.
Markets largely are ignoring the Bank’s doom-mongering. There is a widely held view that tax cuts pledged by Tory leadership candidate Liz Truss, together with help for people struggling with energy bills, could allow the UK to navigate a downturn without a prolonged recession and the surge in unemployment on the Bank’s radar.
Under pressure: Governor Andrew Bailey has lost credibility on the markets and among politicians after his ‘apocalyptic’ forecasting of UK prospects
Most economists believe inflation has yet to peak and will do so in the autumn at close to 12 per cent, well below the figure envisaged by the Bank. Last week’s data from the US showed consumer prices there may already have hit a high, falling back largely because of a drop in the price of energy and petrol at the pumps. The US producer prices index, which reflects the input costs for business, also has started to moderate as the supply blockages from the pandemic ease.
There is no immediate prospect of home energy prices easing in the UK. But the cost of petrol at the pumps is down. It peaked at 191.5p a litre on July 3 and has since fallen back to 175p in recent days in line with a fall in global oil prices.
The drop may have come too late to have much impact on consumer prices in July, when inflation is seen as climbing to 9.7 per cent, but could bring relief to motorists and businesses. Brokers Investec doubt whether an improvement on the inflation front will change the Bank’s approach.
It expects further tightening and forecasts rates will rise from 1.75 per cent to 2.5 per cent by year end. The Bank has already committed to tighten policy by starting to release its holdings of gilt-edged stock – acquired as a result of quantitative easing – back into the market.
It will want to keep monetary policy tight to counter the impact of the looser fiscal policies of Truss, who has made £40billion of pledges, well above the so-called fiscal headroom of £30billion. Her rival for No10, Rishi Sunak, is also making fiscal commitments.
In spite of the threat of recession, Britain’s labour market remains resilient.
Forecasters expect unemployment to hold at 3.7 per cent of the workforce – and employment agencies report more than one million vacancies.