Inflation will start to fall within weeks, says BoE boss Bailey

Cost-of-living pressures should ease within weeks, the Bank of England governor predicted last night.

Household finances are being crushed by an ongoing spiral of price increases, with the latest figures showing inflation still stubbornly above 10 percent.

Rishi Sunak said yesterday that his plan was to win the battle against inflation – “the thing that makes people feel poor” – and that consumers would “feel a lot better by the end of the year.”

He was supported by Andrew Bailey, who predicted better times in an important speech.

Other forecasters also painted a positive picture of the economy.

“We expect to see a sharp drop in inflation in the course of this year, which is likely to start in a few months,” the bank governor told the London School of Economics last night.

On a visit to Essex, Mr Sunak said: ‘We have a plan – trust me, the plan will work. We have to stick to it, it’s not easy, it’s never easy to get inflation out of the system.

“The plan we have is the right one. Hopefully you will see that reflected in your bank accounts, by the end of the year you will feel a lot better.’

When will interest rates start to fall?

Until recently, the market expected the base interest rate to peak at 4.5 percent in the coming months.

Now some analysts think the Bank of England will remain at 4.25 percent.

Regardless of whether we are already at the peak, the forecasts are that interest rate falls will set the tone.

The questions are when and how soon will they fall?

> Read: When will interest rates fall?

The Bank has sought to bring prices under control through a series of sharp rate hikes, further hurting borrowers.

Economic forecasters from both S&P Global and Barclays also signaled light at the end of the tunnel yesterday, with interest rates expected to fall below 3 percent next year.

The S&P Global report suggested that the bank’s latest increase, to 4.25 percent last week, may have been the last for now, and rates will fall to 2.5 percent by 2025.

Mr Bailey said the latest evidence pointed to ‘more resilient activity’ in the economy and job market.

There was a setback last week when inflation unexpectedly rose to 10.4 percent, showing that the path “will not be completely smooth” and that pressure on prices “remains high,” he said.

The Bank is also concerned about the growing number of workers opting for early retirement, adding to the number of “economically inactive.”

Rishi Sunak said yesterday that his plan was to win the battle against inflation – “the thing that makes people feel poor” – and that consumers would “feel a lot better by the end of the year.”

Mr Bailey said the phenomenon was ‘part of the reason’ why it had to raise interest rates as much as it has.

He described what would happen if employees who retired early built up enough savings to keep spending at the same level as before they stopped working.

That would mean that demand in the economy remains the same even as the supply of labor falls, disrupting the delicate balance between supply and demand in the economy that is necessary to keep inflation under control.

“We should expect this to put upward pressure on inflation in a way that would require higher interest rates to dampen demand,” he said.