By David Milliken and Andy Bruce
LONDON (Reuters) -Bank of England Governor Andrew Bailey said he was encouraged by Britain’s latest inflation data which left price growth broadly as the central bank expected, and he pointed to early signs of a pick-up in the economy.
Official figures released on Wednesday showed consumer prices rose 4.0% in the 12 months to January – defying forecasts of an acceleration and slightly lower than the BoE had expected in projections it published on Feb.
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“That’s good news, as far as I can tell,” Bailey told the Economic Affairs Committee in the House of Lords, the upper house of Britain’s parliament.
January’s lower-than-expected inflation reading followed a surprise to the upside in December.
“I think it leaves us broadly where we thought we were going to be.
But that’s obviously encouraging relative to where we could have been,” Bailey said.
The BoE earlier this month held its benchmark rate at 5.25%, its highest since 2008, but signalled that the time was approaching for a first rate cut since the coronavirus pandemic as it forecast that inflation would fall to its 2% target soon.
Investors increased their bets on a first BoE rate cut as soon as June after Wednesday’s inflation figures.
Bailey said services inflation was still too high to be consistent with the BoE’s 2% target and rate-setters needed more clear evidence that wage growth was receding before cutting interest rates.
The effect of falling inflation would aid that process, Bailey said: “That feeds through into inflation expectations and that will feed through into wage bargaining – and I think we’re starting to see that.”
Bailey also said it was “in the balance” whether data due on Thursday shows that Britain fell into a shallow recession in the second half of 2023, but there were now signs that Britain’s economy was gathering momentum.
“I think we are now seeing some signs of the beginning of a pickup in some of the surveys, for instance,” he said.
Bailey repeated his view that forward guidance – in which central banks link future policy to specific economic out-turns – was no longer useful for the BoE.
Forward guidance was a flagship policy of Bailey’s predecessor, Mark Carney.
“It’s relatively easy to get into it and really hard to drop it when you’ve got it – it overstays its welcome,” Bailey said.
(Additional reporting by Sachin Ravikumar and Suban AbdullaWriting by Andy BruceEditing by William Schomberg and Toby Chopra)
