Andrew Bailey confirms inflation expected to hit 10% before end of year

The governor of the Bank of England (BoE), Andrew Bailey, has indicated that consumer price inflation will hit 10% before the end of the year.

In his latest report published to the Treasury Select Committee, Bailey revealed the Bank’s Monetary Policy Committee (MPC) is forecasting inflation to average slightly over 10% in the fourth quarter.

Bailey stated that the strength of inflation, relative to the BoE’s 2% target, mainly reflects the “large increases in global energy and tradable goods prices” and added there has been some increase in the inflation rates of more domestically supplied services.

Taken together, the governor’s report indicated that energy and core goods components account for around four-fifths of the overshoot of CPI inflation – relative to the Bank’s 2% target – with the remainder spread across food and services components.

Bailey also highlighted global inflationary pressures resulting from Russia’s invasion of Ukraine in his Committee report, which has led to a “material deterioration” in the outlook for world growth.

“In the MPC’s latest central projection, UK CPI inflation is expected to rise over the remainder of the year, averaging slightly over 10% at its peak in Q4 2022,” Bailey said.

“The majority of that further increase reflects higher household energy prices. The price cap mechanism means that it takes some time for changes in wholesale gas and electricity prices to be reflected in retail energy prices.

“That means consumer price inflation is likely to peak later in the UK than in many other economies, and may therefore fall back later.”

He added: “Once CPI inflation starts to fall, it is projected to fall relatively quickly; to a little above the 2% target in two years’ time, largely reflecting the warning influence of external factors, and to 1.3% in three years, well below the target and mainly reflecting weaker domestic pressures.”

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