Think Tanks
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Above-target inflation should not delay the next rate cut, says IEA Economics Fellow
Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, commented on new data which show that the rate of inflation remained at 2.2% in August
“The latest UK inflation data were probably not good enough to tip the balance towards an interest rate cut this week, but the case for another move remains strong.
“The headline rate held at 2.2% in August, sticking above the MPC’s 2% target. The core rate (excluding food and energy) rose from 3.3% to 3.6%, led by a renewed surge in services inflation from 5.2% to 5.6%.
“However, most of the pick up reflected a jump in air fares, which are volatile from year to year depending on the timing of school holidays. Services inflation is also still lower than anticipated in the Bank’s latest Monetary Policy Report. There is little sign of the ‘wage-price’ spiral that some on the MPC fear.
“Headline inflation may spike in the autumn due to the increase in domestic energy bills, but the Bank has already signalled that it will look past this temporary effect.
“The bigger picture is that the economy is slowing again, the labour market is cooling, and interest rates are higher than necessary to continue bearing down on inflation.”