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P.ublished 19th April 2023
business
Is A Further Interest Rate Rise Needed?
Photo by Nicholas Cappello on Unsplash
Kitty Ussher, Chief Economist at the Institute of Directors, said:
“Business remains extremely concerned by the rate of inflation and wants to see it under control.
“While it is a relief that the headline rate of inflation is now pointing downwards again, following the surprise rise last month, the Bank of England’s job is not yet done. The improvement this month is predominantly due to falling transport prices which, although welcome, hides an underlying stickiness in core inflation which at 6.2% has not yet started to fall. And food inflation is still rising – up from 18% to 19.1% in March.
“Taken together with yesterday’s strong labour market data it is now clear that there is more demand in the economy than the Bank of England had expected in Q1.
“The headline rate will come down a notch in April as base effects from last year work their way through the data, but to address the underlying issues the MPC still needs to raise rates again when it meets in a few weeks’ time.”
“Business remains extremely concerned by the rate of inflation and wants to see it under control.
“While it is a relief that the headline rate of inflation is now pointing downwards again, following the surprise rise last month, the Bank of England’s job is not yet done. The improvement this month is predominantly due to falling transport prices which, although welcome, hides an underlying stickiness in core inflation which at 6.2% has not yet started to fall. And food inflation is still rising – up from 18% to 19.1% in March.
“Taken together with yesterday’s strong labour market data it is now clear that there is more demand in the economy than the Bank of England had expected in Q1.
“The headline rate will come down a notch in April as base effects from last year work their way through the data, but to address the underlying issues the MPC still needs to raise rates again when it meets in a few weeks’ time.”
IEA Economics Fellow Julian Jessop, said:
“Today’s grim inflation data have boxed the Bank of England into a corner. The Monetary Policy Committee has said that evidence of more persistent inflation would mean that interest rates have to rise further, so another increase next month so another increase next month may now be inevitable.
“It is not all bad news. The latest producer price data confirm that pipeline pressures are easing, including in the food sector where inflation should start to plummet soon. However, the MPC will pay the most attention to the stickiness of ‘core’ inflation, excluding food and energy, which remained at 6.2 per cent, and of services inflation, which was stuck at 6.6 per cent.
“It need not be like this. A more credible central bank would be able to look forward, rather than back, and keep interest rates on hold. There are still many reasons why inflation is likely to fall sharply in the months ahead, including the substantial tightening in monetary and financial conditions which is only just starting to feed through.
“Unfortunately, if your only tool is a hammer, every problem is a nail. The Bank seems set to raise interest rates further, increasing the risks of overkill.”
“Today’s grim inflation data have boxed the Bank of England into a corner. The Monetary Policy Committee has said that evidence of more persistent inflation would mean that interest rates have to rise further, so another increase next month so another increase next month may now be inevitable.
“It is not all bad news. The latest producer price data confirm that pipeline pressures are easing, including in the food sector where inflation should start to plummet soon. However, the MPC will pay the most attention to the stickiness of ‘core’ inflation, excluding food and energy, which remained at 6.2 per cent, and of services inflation, which was stuck at 6.6 per cent.
“It need not be like this. A more credible central bank would be able to look forward, rather than back, and keep interest rates on hold. There are still many reasons why inflation is likely to fall sharply in the months ahead, including the substantial tightening in monetary and financial conditions which is only just starting to feed through.
“Unfortunately, if your only tool is a hammer, every problem is a nail. The Bank seems set to raise interest rates further, increasing the risks of overkill.”
Alpesh Paleja, CBI Lead Economist, said:
“February’s uptick in inflation proved to be short-lived, with the CPI rate having fallen back in March. Inflation should continue to fall over the rest of this year, thanks to lower energy prices and base effects unwinding. But with the CPI rate set to stay above the Bank of England’s target, this will still be a tough year for many households – in particular, the strength in food price inflation will continue to have a big impact on peoples’ pockets.
“Monetary policy is now facing a renewed trade-off, with the inflation outlook looking more benign against the backdrop of some resilience in economic activity. With domestic price pressures still stubbornly strong, it’s plausible that the Bank of England will raise interest rates again at its May meeting. Nonetheless, we’re likely close to the peak in this rate-tightening cycle.”
“February’s uptick in inflation proved to be short-lived, with the CPI rate having fallen back in March. Inflation should continue to fall over the rest of this year, thanks to lower energy prices and base effects unwinding. But with the CPI rate set to stay above the Bank of England’s target, this will still be a tough year for many households – in particular, the strength in food price inflation will continue to have a big impact on peoples’ pockets.
“Monetary policy is now facing a renewed trade-off, with the inflation outlook looking more benign against the backdrop of some resilience in economic activity. With domestic price pressures still stubbornly strong, it’s plausible that the Bank of England will raise interest rates again at its May meeting. Nonetheless, we’re likely close to the peak in this rate-tightening cycle.”
TUC General Secretary Paul Nowak said:
“With prices still rising much faster than wages, working families are desperate for better news on pay.
“But Rishi Sunak is dragging his heels on meaningful negotiations to resolve pay disputes. And yet he goes easy on the oil and gas giants treating families like cash machines.
“Sunak has his priorities wrong – his government should reward work, not wealth. We need negotiations to settle the current disputes, and a plan to get wages rising across the economy.”
“With prices still rising much faster than wages, working families are desperate for better news on pay.
“But Rishi Sunak is dragging his heels on meaningful negotiations to resolve pay disputes. And yet he goes easy on the oil and gas giants treating families like cash machines.
“Sunak has his priorities wrong – his government should reward work, not wealth. We need negotiations to settle the current disputes, and a plan to get wages rising across the economy.”