Bank of England governor dismisses prospect of interest rate cuts
Markets are underestimating how persistent inflation will be in the next year and interest rates are likely to remain high as a result, the governor of the Bank of England has said.
Andrew Bailey told MPs that Bank rate is likely to be kept at an elevated level for a “significant” period in order to bring down inflation further following last week’s fall.
Mr Bailey told the Treasury select committee that despite inflation having passed the government’s target of halving this year, domestic “second-round” impacts mean the “last mile will be the hardest” as the Bank focuses on its mandate to return inflation to the 2% target.
“I really think the market is putting too much weight on the current data releases and the fact that we’ve seen inflation come down quite rapidly, that’s good news obviously,” he said.
“We are concerned about the potential persistence of inflation as we go through the remainder of the journey down to 2% and I think the market is underestimating that.”
The governor said last week’s abrupt fall from 6.8% was the result of elevated energy prices falling out of the annual inflation calculation, but there were no more large “base effects” left to drop out of the figures.
“It [the fall] was obviously good news – it was largely news that we expected,” he said.
“As we set out in the Monetary Policy Report, we expect a little bit more of what I would call this unwinding of last year’s external shocks to come through. We’re not going to get another one like last week though; that’s the last of those base effects to come through.”
Speaking 24 hours ahead of the chancellor’s autumn statement, Mr Bailey refused to be drawn on whether Prime Minister Rishi Sunak had played any role in cutting inflation from January’s peak of more than 11%, or whether tax rises of any kind could be considered inflationary.
Please use Chrome browser for a more accessible video player
‘We are beginning to win inflation battle’
The Bank’s most recent forecast is that inflation will fall to 3% next year and return to the 2% target in 2025.
Mr Bailey said food price inflation should fall further by the end of the first quarter of next year, but that consumers were still feeling the impact of the Ukraine war in weekly grocery shopping.
He said anxiety about the cost and availability of key inputs like fertiliser meant farmers had “locked in higher prices” by agreeing higher prices on long-term supply deals that were yet to fall away.
Please use Chrome browser for a more accessible video player
Inflation drop: Good news?
Deputy governor Dave Ramsden told MPs constraints on the supply side of the economy were effectively a “speed limit” on growth despite quite resilient demand.
Wage inflation, currently above 7%, was a key factor particularly in the services sector, which accounts for close to half of inflation, and where pay accounts for 60% of costs.
Read more from Sky News:
If you can work, you should, says minister – as benefits crackdown looms
Doubt cast on Sunak debt pledge as October borrowing second highest on record
Retailers hit back as study finds just 2% of Black Friday offers were at their best price
He also pointed to the relative lack of business investment in the UK economy since the Brexit referendum in the summer of 2016.
“Business investment is 6% higher than in the second quarter of 2016, before the Brexit referendum, that’s an average of less than 1% a year. In that time US business investment has gone up 25%.”
In spiky exchanges with MP’s Mr Bailey also denied the central bank had been “behind the curve” in addressing inflation.
“We were the first major central bank to raise rates, so that is not true,” he said.
Some of the biggest US technology companies have pledged billions of pounds of investment to turbocharge Britain’s artificial intelligence (AI) industry, as the two countries announce a landmark technology deal.
Nvidia, Microsoft, Open AI and Google made a flurry of announcements to coincide with President Trump‘s state visit to the UK.
They include plans to build data centres and invest in AI research and engineering.
Money latest: Tax warning over state pension
Sir Keir Starmer described the agreement, which both leaders will sign over the coming days, as “a generational step change” in Britain’s relationship with the US.
The deal will see both countries cooperate on AI, quantum computing and nuclear energy, with investment in modular reactors revealed earlier this week.
Please use Chrome browser for a more accessible video player
Energy boss makes case for nuclear future
The prime minister said it was “shaping the futures of millions of people on both sides of the Atlantic, and delivering growth, security and opportunity up and down the country”.
The government said the deal would deliver thousands of jobs, with a new AI Growth Zone in the North East of England earmarked for 5,000 jobs.
The region will host a new data centre developed in partnership with ChatGPT developer OpenAI, the US chip giant Nvidia and the British data centre company Nscale. The UK government will supply energy for the project, which will be based in Blyth.
Jensen Huang, chief executive of Nvidia, who has previously drawn attention to Britain’s inadequate levels of digital infrastructure, said: “Today marks a historic chapter in US-United Kingdom technology collaboration.
“We are at the Big Bang of the AI era – and the United Kingdom stands in a Goldilocks position, where world-class talent, research and industry converge.”
Nvidia chief executive Jensen Huang. Pic: Reuters
The Blyth data centre is part of Stargate, Open AI’s infrastructure project to build large data centres across the US.
The company has also developed sites in Norway and the UAE. Nvidia, which provides the graphic processing chips (GPUs), expects to generate $20bn (£14.6bn) by the end of this year from “sovereign” deals with national governments over the coming years.
Sam Altman, OpenAI’s chief executive, said: “The UK has been a longstanding pioneer of AI, and is now home to world-class researchers, millions of ChatGPT users and a government that quickly recognised the potential of this technology.
“Stargate UK builds on this foundation to help accelerate scientific breakthroughs, improve productivity, and drive economic growth.”
Read more from Sky News:
How most people are using ChatGPT
NHS medicines bill ‘should rise to preserve UK drug industry’
Microsoft also pledged £22bn, its largest ever investment in the UK, to expand data centres and construct the country’s largest AI supercomputer.
Meanwhile, Google owner Alphabet pledged £5bn to expand its data centres in Hertfordshire and fund its London-based subsidiary DeepMind, which uses AI to power cutting edge scientific research. The company was founded in Britain and acquired by Google in 2014.
Other investments include £1.5bn from AI cloud computing company CoreWeave and £1.4bn from Salesforce.
There are “no discussions around taxpayers’ money” to prop up Jaguar Land Rover’s (JLR) suppliers, according to the prime minister’s official spokesman, as the carmaker grapples a lengthening production shutdown following last month’s cyber attack.
JLR factories fell silent more than two weeks ago. While it is damaging for the company, it represents a perilous loss of business for the supply chain which has also been forced to send workers home.
Some have already lost their jobs.
Unions and the business and trade committee of MPs were among those to request the possibility of aid to prevent job losses and employers going bust as the disruption drags on.
Money latest: Tax warning over state pension
What happened?
It was revealed on 1 September that global production at JLR had been stopped following a cyber attack.
IT systems were taken offline by the company under efforts to limit penetration and damage.
The company appeared confident initially that manufacturing could resume but restart dates have been consistently put back.
What damage was done?
Jaguar Land Rover has said very little about the extent of the attack.
But it admitted last week that some data had been accessed. It gave no further details.
Who is to blame?
A criminal investigation is continuing.
A group of English-speaking hackers claimed responsibility for the JLR attack via a Telegram platform called Scattered Lapsus$ Hunters, an amalgamation of the names of hacking groups Scattered Spider, Lapsus$ and ShinyHunters.
Scattered Spider, a loose group of relatively young hackers, were behind the Co-Op, Harrods and M&S attacks earlier in the year.
It is widely believed that M&S paid a sum to regain control of its systems after it was targeted with ransomware though it has refused to confirm if this was the case.
How is this affecting JLR as a business?
The business was highly profitable last year but 2025 has seen new trade war challenges in addition to the cyber attack: File pic: Reuters
JLR typically produces about 1,000 vehicles a day.
Production staff are being paid but kept away from plants at Halewood on Merseyside, Solihull in the West Midlands, and its engine factory in Wolverhampton. It is the same story for workers at sites in Slovakia, China and India.
JLR revealed on Tuesday that production lines would now remain shut until at least 24 September.
David Bailey, professor of business economics at the Birmingham Business School, told the PA news agency: “The value of cars usually made at the sites means that around £1.7bn worth of vehicles will not have been produced, and I’d estimate that would have an initial impact of around £120m on profits.”
JLR achieved a pre-tax profit of £2.5bn for the financial year ending 31 March 2025, so should be able to absorb such a hit.
Sales and service operations continue as normal at its retail partners but the longer the disruption goes on, so do the risks to its inventories and bottom line.
Why does its supply chain need help?
JLR’s supply chain includes everything from components to paint. Pic: Reuters
This is the part of the operation that was always bound to suffer most in the event of a global JLR production shutdown.
No manufacturing means no need for parts.
The company usually depends on a ‘just in time’ supply chain to feed its factories and keep production lines running smoothly.
The Unite union has appealed for a COVID-style furlough scheme to prevent job losses and the risk of affected companies, often small or medium-sized firms, being forced out of business.
JLR’s operations are understood to directly support more than 100,000 jobs in the UK though that sum doubles through indirect roles.
The loss of any major supplier would risk further production delays once JLR’s IT systems are back online.
It is currently understood that the vast majority of directly affected workers remain in their jobs but have either been sent home or are on restricted tasks.
JLR suppliers Evtec, WHS Plastics, SurTec and OPmobility have had to temporarily lay off roughly 6,000 staff while a growing number of other firms are cutting workers, with temporary or contracted workers most likely to be affected.
What has the government said?
In addition to the remarks by the PM’s official spokesman, minister for industry Chris McDonald told Sky News: “We know this is a worrying time for those affected by this incident and our cyber experts are supporting JLR to help them resolve this issue as quickly as possible.
“I met the company today to discuss their plans to resolve this issue and get production started again, and we continue to discuss the impact on the supply chain.”
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoButton battles heat exhaustion in NASCAR debut
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment12 months agoHere are the best electric bikes you can buy at every price level in October 2024