Home » Pound drops as Bank of England deputy governor sees lower inflation ahead – as it happened

Pound drops as Bank of England deputy governor sees lower inflation ahead – as it happened

BoE’s Ramsden: inflation will fall sharply in April, near to the 2% target

A Bank of England deputy governor has predicted that UK inflation will fall back close to the official target in April, for the first time since the summer of 2021.

Sir Dave Ramsden has told an event in the US that he is confident that price pressures will ease further, after CPI inflation fell to 3.2% earlier this week.

And significantly, he also suggested he was less confident that inflation would rise towards the end of this year, as the Bank has previously predicted.

Speaking at the Peterson Institute of International Economics, in Washington DC, Ramsden argues that the UK looks like less of an outlier in terms of recent inflation performance and more of a laggard.

March’s fall in the CPI index means inflation is falling more slowly in the UK than in the US, and Ramsden predicts that April’s data – due in mid-May – will show a fall close to eurozone levels (where inflation was just 2.4% in March).

A chart showing UK inflation Photograph: Bank of England

Ramsden cautions that the risks from events in the Middle East “remain to the upside”, but predicts that the cut to the UK’s energy price cap this month will help push inflation down.

He says:

Given we know the level of the Ofgem price cap for April and also taking account of the freezing of fuel duties in the March Budget, then other things equal we can be confident headline CPI inflation will fall sharply in April, to close to the 2% target.

Ramsden was one of eight policymakers who voted to leave interest rates on hold in March, with one voting for a cut.

The MPC will meet again in early May, and Ramsden says today that he believes there’s more chance that inflation stays near the 2% target over the next three years – rather than back towards 3% by the end of this year, as the Bank had predicted.

Ramsden says:

Over the last few months I have become more confident in the evidence that risks to persistence in domestic inflation pressures are receding, helped by improved inflation dynamics.

As we set out in our March 2024 minutes there is a range of views among the MPC on these risks. For me the balance of domestic risks to the outlook for UK inflation, relative to the February MPR forecasts, is now tilted to the downside, with a scenario where inflation stays close to the 2% target over the whole forecast period at least as likely.

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Key events

Pound falls below $1.24 to 2024 low

A late PS: The pound has dropped below $1.24 for the first time since last November.

Sterling is down almost half a cent tonight at $1.2391, after BoE deputy governor Sir Dave Ramsden said he thought inflation could be lower over the next few years than the Bank had previously forecast.

Closing post

Time to wrap up; here’s today’s main stories so far:

https://www.theguardian.com/business/2024/apr/19/finnish-startup-food-air-solar-power-solein

Oil is ending the day flat, another sign that investors are more relaxed about Middle East events.

This leaves Brent crude unchanged at $87.10 per barrel.

FTSE 100 closes higher

I mentioned this morning that European stock markets weren’t really plunging on the back of Israel’s attack on Iran.

And to underline that, stocks in London have just closed higher.

The FTSE 100 index has ended the day 18 points higher at 7895, up 0.25%. Packaging company Mondi led the risers, up 9%, after abandoning its hopes of taking over DS Smith.

The picture across Europe is mixed, though, with Germany’s DAX down around 0.5% today, Spain’s IBEX off 0.3%, and France’s CAC flat.

Sir Dave Ramsden concluded his speech in Washington (online here) by saying he would take a “watchful and responsive” approach to setting interest rates:

He says:

The MPC will have to consider collectively the degree of restrictiveness of policy at each upcoming meeting to ensure inflation returns sustainably to the 2% target. I will continue to take a watchful and responsive approach to my policy decisions as I have tried to do throughout this period of unprecedented structural shocks.

Watchful, in terms of assessing the evidence as it accumulates and responsive in terms of the stance of monetary policy warranted by the evidence.

Some Bank critics have said it is being too slow to respond to the economic slowdown by leaving interest rates on hold since last summer, having been too slow to raise them as inflation began to rise in 2021.

In his speech, Sir Dave Ramsden shows how recent falls in headline inflation have dampened inflation expectations.

Photograph: Bank of England

That leads to a drop in pay growth, which leads to a slowdown in services inflation (as firms have smaller wage increases to pass on), he explains.

Photograph: Bank of England

BoE’s Ramsden: inflation will fall sharply in April, near to the 2% target

A Bank of England deputy governor has predicted that UK inflation will fall back close to the official target in April, for the first time since the summer of 2021.

Sir Dave Ramsden has told an event in the US that he is confident that price pressures will ease further, after CPI inflation fell to 3.2% earlier this week.

And significantly, he also suggested he was less confident that inflation would rise towards the end of this year, as the Bank has previously predicted.

Speaking at the Peterson Institute of International Economics, in Washington DC, Ramsden argues that the UK looks like less of an outlier in terms of recent inflation performance and more of a laggard.

March’s fall in the CPI index means inflation is falling more slowly in the UK than in the US, and Ramsden predicts that April’s data – due in mid-May – will show a fall close to eurozone levels (where inflation was just 2.4% in March).

A chart showing UK inflation Photograph: Bank of England

Ramsden cautions that the risks from events in the Middle East “remain to the upside”, but predicts that the cut to the UK’s energy price cap this month will help push inflation down.

He says:

Given we know the level of the Ofgem price cap for April and also taking account of the freezing of fuel duties in the March Budget, then other things equal we can be confident headline CPI inflation will fall sharply in April, to close to the 2% target.

Ramsden was one of eight policymakers who voted to leave interest rates on hold in March, with one voting for a cut.

The MPC will meet again in early May, and Ramsden says today that he believes there’s more chance that inflation stays near the 2% target over the next three years – rather than back towards 3% by the end of this year, as the Bank had predicted.

Ramsden says:

Over the last few months I have become more confident in the evidence that risks to persistence in domestic inflation pressures are receding, helped by improved inflation dynamics.

As we set out in our March 2024 minutes there is a range of views among the MPC on these risks. For me the balance of domestic risks to the outlook for UK inflation, relative to the February MPR forecasts, is now tilted to the downside, with a scenario where inflation stays close to the 2% target over the whole forecast period at least as likely.

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Professor Costas Milas of the University of Liverpool is concerned by the rather relaxed response of financial markets to the Iran-Israel conflict.

He tells us:

It looks like financial markets are buying into the argument that either Iran or Israel can …“put into a computer program” their military operations and that these operations will run “smoothly”.

Both Iran and Israel are playing with fire.

Past experience, as I note in a recent LSE Business blog, shows that oil prices and inflation do increase in response to rising geopolitical risk and, at the same time, UK growth will take a “hit”. I am rather sceptical that “this time is different”.

Jane Croft

A senior lawyer for the Post Office fought a high court case brought by post office operators “tooth and claw” because the state-owned body knew criminal appeals would follow if it lost the lawsuit, a public inquiry heard today.

Rodric Williams, a senior lawyer with the Post Office, was giving evidence for the second day to a public inquiry which is looking into how hundreds of post office operators were pursued and prosecuted for more than a decade over alleged financial shortfalls in their branch accounts, which it has since emerged were caused by bugs in the Post Office’s Horizon IT system.

Williams who is the head of legal (dispute resolution and brand) at the Post Office was asked about the aggressive litigation strategy which Post Office took in fighting a high court lawsuit brought by post office operators including Alan Bates, whose fight for justice was dramatised by ITV earlier this year. The high court case paved the way for the convicted victims to be exonerated.

Edward Henry KC, a barrister acting for post office victims, put to Williams that Post Office had fought the high court lawsuit “tooth and claw” because they knew if they lost the case “ a cascade of criminal appeals would follow.”

Williams replied:

“I don’t recall turning my mind to that at the time.”

Henry also accused Williams of being in possession of all the information that was eventually deployed to overturn the conviction of post office operator Seema Misra, one of the best known victims of the scandal.

In 2010 Misra was sentenced to 15 months in prison for theft and locked up on her son’s 10th birthday while eight weeks pregnant. She was placed on suicide watch after collapsing in court. Her conviction was amongst those overturned by the court of appeal in 2021.

The inquiry heard that Williams knew by 2013 and certainly by 2016 that expert evidence used in her trial was flawed and her criminal conviction was unsafe.

Henry said:

“Mrs Misra’s conviction was eventually quashed in April 2021, ten and half years after she’d been wrongly convicted. You personally were aware of information sufficient to quash her conviction by July 2013 weren’t you?”

Williams replied:

“I had information – whether it was sufficient to quash.. That I do not know.”

The inquiry continues.

The US stock markeet hs opened flattish, as anxiety over the Middle East eases.

The S&P 500 share index has dipped just 2 points, or 0.05%, to 5,008, while the Dow Jones industrial average has gained 0.2%.

The tech-focused Nasdaq has lost 0.3%, as shares in streaming service Netflix slide 7% after it issued a mixed trading outlook last night.

Interesting developments in the UK supermarket scene today.

Bloomberg are reporting that US private equity firm TDR Capital is closing in on a deal to buy billionaire Zuber Issa’s 22.5% stake in Asda.

The deal, if completed, would increase TDR’s stake in Asda and tighten its grip on the indebted supermarket chain.

Bloomberg reports:

The agreement for Issa’s 22.5% stake would give TDR majority control and could be announced in coming weeks, the people said, asking not to be named with negotiations in flux. They declined to specify the terms being discussed.

TDR’s holding in Asda would rise to about two-thirds, while the transaction would further the dismantling of the relationship between brothers Zuber and Mohsin Issa.

Zuber Issa, his brother Mohsin, and TDR bough a majority stake in Asda in 2021. The Blackburn-based Issa brothers had previously become billionaires by building up a petrol station empire.

It emerged in February that Zuber was looking to sell his stake, after the breakdown of Mohsin’s marriage was said to have “sent shockwaves” through the family.

Shoppers in Sutton High Street, south London Photograph: Simon Turner/Alamy

Rising real wages could help the UK retail sector recover in 2024, argues Barbara Teixeira Araujo, an economist at Moody’s Analytics.

Following this morning’s weaker-than-expected retail sales report, Teixeira Araujo says:

“While U.K. retail sales were flat in March, it is not all doom and gloom. Sales rose in the first quarter at the strongest pace since the post-pandemic rebound in mid-2021, and will contribute around 0.1 percentage points to first-quarter GDP growth.

Our view is that the retail sector bottomed out in the second half of 2023, and we expect rising real wages to support sales in the high street this year. April’s cut to National Insurance contributions, combined with the increases in the state pension, welfare benefits and with the rise in the National Living Wage will further support take-home pay, making 2024 the year when retailer’s fortunes will likely turn.”