Bank of England Deputy Signals Inflation Set to Hit Two Per Cent Target as Job Market Eases and Food Costs Rise

Interest rates in the United Kingdom could be poised for a further drop as inflation is predicted to retreat to the Bank of England’s 2 per cent benchmark, according to Deputy Governor Sir Dave Ramsden. Recent remarks at a European Central Bank event in Frankfurt underscore growing confidence among central bankers that wage growth is slowing and labour market conditions are weakening—two factors seen as supporting disinflation.

Latest data from the Office for National Statistics illustrate that unemployment now stands near a four year high at 4.7 per cent, while wage increases have tempered to their slowest pace in three years. Ramsden highlighted these shifts as significant in steering the country past the recent spike in inflation, driven largely by higher prices for food and basic necessities.

According to Ramsden, a government decision to lift payroll taxes by £25 billion has contributed to elevated food inflation, which reached 5.1 per cent in August, marking a 19 month high. The Bank projects that overall inflation will peak in September at 4 per cent, up from the current 3.8 per cent rate. Ramsden remarked that increased grocery costs remain the most visible to consumers, resulting in sharply heightened household expectations for future inflation, now at their highest since 2019.

The Monetary Policy Committee’s cautious approach to easing monetary policy continues to be Ramsden’s preference. He views current interest rates, held steady at 4 per cent as of this month’s meeting, as appropriate for guiding inflation back to target levels. Ramsden stated that there remains potential to ease policy further, provided the disinflation trend continues and market expectations align with the Bank’s forecasts.

Echoing similar sentiments, Swati Dhingra—a fellow Committee member—dismissed the notion that the UK faces a uniquely British inflation challenge. She argues that global factors driving high inflation are set to moderate, suggesting little reason for over-caution when it comes to rate cuts. Investors broadly expect the Bank of England to keep rates unchanged for the rest of the year, with the next policy decision slated for early November.

Despite opponents on the committee advocating a quarter point cut to 3.75 per cent, the majority favour maintaining the status quo for now. Headline inflation remains considerably above the target but is forecast to fall in the wake of moderating wage demands and a looser jobs market.