8:10 am, January 20, 2023
A recession in the UK will not be as bad as first feared with the downturn in the economy ‘long and shallow’, believes the governor of the Bank of England.
Andrew Bailey has predicted that inflation will also begin to fall rapidly in late spring as lower energy prices trickle through.
Bailey believes interest rates are also likely to peak at 4.5 per cent as he said Britain faces an ‘easier path’ out of recession.
The governor added inflation is likely to fall ‘quite rapidly’, starting in the late spring, as he indicated ‘a corner has been turned’.
The Office for National Statistics said the rate of Consumer Prices Index inflation fell to 10.5 per cent in December from 10.7 per cent, offering a further sign that the cost-of-living crisis may have passed its peak.
Bailey said: ‘What we think is the most likely outcome is that (inflation) will fall quite rapidly this year, probably starting in the late spring and that has a lot to do with energy pricing.
‘There was a sort of locked-in level of energy prices over the winter, but we expect it to fall quite rapidly after that, for at least for a couple of reasons.
‘One, it is a bit of arithmetic in the sense as it is of course an annual calculation so the big base effects from last year will start to fall out, and unless something happens it will start to fall quite rapidly actually as we showed in our November monetary policy report.
‘The other thing that has happened really in the last couple of months is that particularly energy prices have started to come off and gas prices quite a lot actually since the beginning of the winter.
‘That isn’t actually yet feeding through, because of the way in which particularly domestic prices are calculated, but it will do.
‘And that is encouraging and I think it is a product that Europe has higher stock levels and we had a warmer winter than we might have done. It does mean there is more optimism now that we are sort of going to get through the next year with an easier path there (inflation).’
Analysts are predicting the cost of energy for households will now fall to an average of £3,208 in April and to £2,200 between July and the end of the year. Previously, those figures were predicted to be £3,545 and £2,835.
Fuel prices have also fallen sharply with the price of petrol down 8.3p month-on-month in December. However, food prices and hospitality costs are still rising.
The Times reports today that the chancellor Jeremy Hunt wants to keep the 5p per litre fuel duty cut running for another year.
The British Chambers of Commerce said that while the peak of inflation appears to have passed, rising prices were still ‘far and away the top issue’ affecting businesses.
Additional reporting: PA Media
Car Dealer Live – the future of the car dealer – exclusive conference features talks from leading car dealers, Google and Auto Trader among much more. Find out the full event details and book tickets.
