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Hello and welcome to City AM's new video series, Your Questions Answer, where we try
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and get to the nub of the issues that are getting the city and indeed the wider United Kingdom talking
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We're better to start with the Bank of England, runaway inflation really the story of the last couple of years
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And who better to discuss it with than my colleague Chris Daryl, who's our banking and economics correspondent
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Chris, we've got inflation still kicking ahead just above of 6%. Of course, Bank of England targets 2%
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Most people expect to get to fall over the coming months still
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But yeah, the Bank of England still expected, I think, to at least hike interest rates one more time
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which will be, I think, the 15th or 16th. I forget. Why is the Bank of England continuing to hike that interest rate
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which obviously dampens economic growth, at the same time as we're starting to see inflation fall
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Well, yes, you're right. The Bank of England is almost certain to hike rates again when it meets later in September And although inflation is falling at the most recent reading the headline rate fell quite significantly but core inflation
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which strips out kind of the most volatile aspects. And I think which most ysts would suggest
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is a more important thing to focus on, actually increase month on month
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which implies, I guess, that inflation is more embedded in the economy
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than many economists had predicted when inflation first took off 18 months ago
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Yeah, and a lot of that core inflation, well, people blamed inflation, certainly the government blamed inflation on things beyond
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on the Bank of England, blamed inflation on things beyond their control, right, the war in Russia and the Ukraine
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the gummed up supply chains at the end of COVID-19, the pandemic just creating scarcity, more demands than there was supply
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naturally pushes up prices. But I guess what we've seen now in this core inflation is
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as you say, that sort of when people ask of pay rises, that obviously forces companies to then put up their own prices
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and that creates this wage-price spiral, of course we want to avoid. And that seems to be the thinking of the Bank of England But there are people I think and correct me if I wrong but there are people who I think saying that maybe the Bank of England could be going too far and actually while they may get inflation back to target
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they do have to remember that the economy needs to keep, if not motoring, at least heading in the right direction
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Yeah, it's a difficult balance because I think policymakers always say there's a time lag for the effect of interest rates to come through
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So they're effectively guessing what, impact it will, what impact the decisions they've already made will have in the next few months
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So they need to be careful not to go too far too soon. And I think that you're right
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there are people who are saying that the impact of the rate hikes they've already made
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haven't yet come through fully. So a more cautious approach would be to wait and see for a few
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months because like you say if rates go up too fast the risk is that the economy
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tips into recession unnecessarily On the other side of that the Bank of England clearly didn see inflation coming in the first place and many argued and continued to argue that they were too slow to raise rates in the first place
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and then mischaracterised inflation as transitory. So, you know, it's a... Yeah
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Whether or not their reputations are on the line. Who'd be a central bank governor, eh
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That's the question. Certainly Mark Carney seems to have had it easy when he was in post before handing off his long-time deputy, Andrew Bailey, who's reputation in the city probably could do with some improvement
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That's the inflation debate that's raging at the moment, be raging at the MPC. We get the decision at the back end of September, find out what interest rates do
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I suggest at least one more height, maybe another one before the end of the year. Either way, the pain for mortgage holders, Chris, in one word, significant
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Pretty significant. That'll do for now. I've been Andy Sylvester, this has been Chris Daryl
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Don't forget to check all the economics and business news live at citiam.com as well as in the paper and of course now on our app
