Bank of England Governor Andrew Bailey has been warned not to increase interest rates despite “disappointing” data revealing inflation failed to fall in September in line with expectations.
Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, argued that with a large inflation drop “baked in” for October, Mr Bailey and his colleagues should consider cutting interest rates, currently fixed at 5.25 percent, still further.
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation stayed at 6.7 percent, unchanged from August, despite expectations that inflation would fall again.
Analysts had predicted inflation would dip to 6.6 percent for the month.
However, official figures showed that food and non-alcoholic drink prices dipped on a monthly basis in September for the first time in two years in an encouraging signal to household struggling with the cost-of-living crisis.
Mr Jessop said: “Despite the disappointing inflation data for September, the Bank of England should now be thinking about cutting interest rates, not raising them again.
“The bigger than expected fall back in August means that inflation is still lower than the Bank had been forecasting. Economic growth has been weaker too.”
He explained: “A large drop is baked in for October.
“The reduction in the Ofgem cap on domestic energy bills will knock more than one percentage point off the headline rate this month.
“Above all, money and credit are now both shrinking, adding to the risks of recession and ensuring that inflation has a lot further to fall.”
The September reading is generally used to calculate the increase in benefits payments for the following year, as well as outlining rises in some taxes, such as business rates.
Rishi Sunak’s Government has not yet confirmed this will be the case for 2024.
The latest figures come after separate data from the ONS published yesterday indicated that wages outpaced inflation for the first time in nearly two years.
ONS chief economist Grant Fitzner said: “After last month’s fall, annual inflation was unchanged in September.
“Food and non-alcoholic drinks prices eased again across a range of items, with the cost of household appliances and air fares also falling this month.
“These were offset by rising prices for motor fuels and the cost of hotel stays.”
Nevertheless, inflation remains significantly above the Bank of England’s two percent target, while there is also still pressure on the Government to meet its pledge of halving inflation in 2023. It will need the rate to fall to below 5.4 percent by the end of 2023.
Shortly after the inflation figures were published, Treasury minister Andrew Griffith insisted the Government is “on track” to meet this commitment.
Chancellor Jeremy Hunt added: “As we have seen across other G7 countries, inflation rarely falls in a straight line, but if we stick to our plan then we still expect it to keep falling this year.
“Today’s news just shows this is even more important so we can ease the pressure on families and businesses.”
