Bank of England chief economist warns inflation could top 5%
Inflation could top 5% in the months ahead, the Bank of England’s new chief economist has warned.
The remarks by Huw Pill in an interview with the Financial Times are likely to be seized upon as the latest evidence of Britain’s cost-of-living crisis.
Mr Pill also told the FT that the Bank would face a “live” decision on whether to raise interest rates at its rate-setting meeting next month though he declined to say which way he would cast his vote.
Huw Pill said the Bank faced a ‘live’ decision on interest rates
That follows recent remarks by Mr Pill’s boss, BoE governor Andrew Bailey, that the Bank may “have to act” over inflation – comments which prompted markets to price in a 90% chance of a rate hike in November.
The Bank rate is currently at the historic low of 0.1% after being slashed in the early stages of the coronavirus crisis.
Inflation has turned higher in recent months as supply chains struggle to keep up with the resumption of demand following pandemic lockdowns.
Though latest official figures showed the rate of price increases slipping back slightly to 3.1% in September, underlying pressures – also including labour shortages and spiking energy prices – look set to persist.
The Bank of England has previously said that it expects the CPI measure of inflation to climb above 4% by the end of the year.
Mr Pill told the FT: “I would not be shocked – let’s put it that way – if we see an inflation print close to or above 5% [in the months ahead].”
BoE governor Andrew Bailey has said it may ‘have to act’
He said it was a “very uncomfortable place” for a central bank with an inflation target of 2% – despite his view that inflation was likely to come down again in the second half of next year.
However he urged caution over the exact timing of a rate hike – traditionally seen as a tool for central bankers to try to tame inflation – telling the FT that “maybe there’s a bit too much excitement in the focus on rates right now”.
Mr Pill’s latest remarks come after he warned recently that the “magnitude and duration” of the recent upturn in inflation was proving greater than expected.
Business
Donald Trump tells UK to ‘get rid of windmills’ and says raising windfall tax on North Sea oil is ‘big mistake’
Donald Trump has said the UK is making “a very big mistake” in its fossil fuel policy – and should “get rid of windmills”.
In a post on Friday on his social media platform, Truth Social, Mr Trump shared news from November of a US oil producer pulling out of the North Sea, a major oil-producing region off the Scottish coast.
“The UK is making a very big mistake. Open up the North Sea. Get rid of windmills!”, the US president-elect wrote.
The Texan oil producer Apache said at the time it was withdrawing from the North Sea by 2029 in part due to the increase in windfall tax on fossil fuel producers.
North Sea oil rig. Pic: Reuters
The head of Apache’s parent company APA Corporation said in early November it had concluded the investment required to comply with UK regulations, “coupled with the onerous financial impact of the energy profits levy [windfall tax] makes production of hydrocarbons beyond the year 2029 uneconomic”.
Chief executive John Christmann added that “substantial investment” will be necessary to comply with regulatory requirements.
Mr Trump used a three-word campaign pledge “drill, baby, drill” during his successful election campaign, claiming he will increase oil and gas production during his second administration.
In the October budget announcement, UK Chancellor Rachel Reeves raised the windfall tax levied on profits of energy producers to 38%.
Called the energy price levy, it is a rise from the 25% introduced by Rishi Sunak in 2022 as energy prices soared following Russia’s invasion of Ukraine.
Many oil and gas businesses reported record profits in the wake of the price hike.
The tax was intended to support households struggling with high gas and electricity bills amid a broader cost of living crisis.
Apache is just one of a glut of firms that made decisions to alter their North Sea extraction due to the Labour policy.
Read more
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Even before the new government was elected, three companies, Jersey Oil and Gas, Serica Energy and Neo Energy – announced they were delaying, by a year, the planned start of production at the Buchan oilfield 120 miles to the north-east of Aberdeen.
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