LONDON, Dec 18 (Reuters) – British inflation looks on course to return to close to its 2% target by April or May next year, about a year earlier than previously expected, Bank of England Governor Andrew Bailey said on Thursday after the central bank cut interest rates to 3.75%.
In an interview with broadcasters, Bailey said he was “very encouraged” by how far inflation had fallen since the middle of the year when it reached a peak of 3.8%.
Official data on Wednesday showed that inflation dropped to 3.2% in November from 3.6% in October.
“I think now that we’re on a path where we’ll probably be around this level for a few months. But we think that come the spring, April or May time, we should see another quite sharp drop, and take this, I hope, to around target,” he said.
One-off factors that pushed up inflation in April this year will drop out of annual comparisons at that point, while measures in finance minister Rachel Reeves’ budget are likely to lower inflation temporarily by up to half a percentage point.
The BoE forecast in early November that inflation would remain above its 2% target until the second quarter of 2027.
“We’re going to come back to target sooner than we thought. So that’s encouraging. All of this is very encouraging. And for me, certainly, it was a strong basis to cut today,” Bailey said.
British inflation remains higher than in other large, advanced economies.
Bailey said that even after the latest cut, he believed that interest rates were still bearing down on inflation – a view that was not shared by some of the Monetary Policy Committee members who voted against the cut.
But he said that interest rates were getting closer to a neutral level and rate cuts were likely to become less frequent.
“The calls will become closer, and I would expect the pace of cuts, therefore, to ease off at some point. But I’m not going to judge exactly when that is, because it’s too uncertain at the moment,” he said.
(Reporting by David MillikenEditing by William Schomberg)
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