BoE Chief: Monetary Policy Is Stimulative, Fiscal Policy Is Restrictive

Posted October 18, 2017

The Office for National Statistics said consumer price inflation was 3% in the year to September, up from the previous month's 2.9%.

Ramsden said: "Despite continued robust growth in employment, there is no sign of second-round effects onto wages from higher recent inflation".

Two new members of the Bank of England's Monetary Policy Committee cast some doubt on the likelihood of an increase in interest rates in November, though Governor Mark Carney said a hike "may be appropriate" and many economists remained confident of a hike.

Month-on-month, consumer prices gained 0.3 percent in September, as expected.

"The MPC will probably be focussed more on tomorrow's wage growth figures for any signs that domestic cost pressures are building", he said, predicting inflation will be back below 3% by the end of the year and will end 2018 at around 2.25%.

"Today's release has all but rubber-stamped a rate hike from the central bank at their next meeting", said David Cheetham, chief market analyst at online trading firm XTB. Inflation has actually trebled in the year from September 2016, when inflation was just 1 per cent. Meanwhile, monthly input price inflation eased notably to 0.4 percent from 2.3 percent. However, the impact of the lower exchange rate on inflation is set to ease as the annual change of prices due to the pound's decline drops out of the comparison.

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Speaking before the Treasury Select Committee one of the MPC's newest members, Professor Silvana Tenreyro, said that while in the immediate aftermath of the European Union referendum the trade deficit had increased, the gap between imports and exports was now closing.

He said it is more likely than not that he will write open letter to Chancellor Philip Hammond, explaining why inflation exceeded the target by one percentage point.

Also, there is a belief that the bank will lose credibility if once again it puts the market on notice for a rate hike and fails to deliver. After the last meeting, when seven of the nine panel members voted for unchanged rates, Carney put financial markets on notice that interest rates were likely to rise in the "coming months".

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"Life is getting much more expensive with an increase in the cost of food, fuel and a last-minute price spike in flights all contributing to the rise in inflation", said Maike Currie, investment director for personal investing at Fidelity International.