Inflation ‘peak’ must herald further rate cuts
With consumer inflation looking close to its probable high point, the Bank of England must continue to reduce the cost of borrowing, a leading business group has argued.
Official figures have shown the consumer prices index rate of inflation rising to 5.2 per cent for September, up from the 4.7 per cent registered in August.
The rise in the cost of living was steeper than had been anticipated, and the hike has been blamed on sharp increases in utility bills.
However, many analysts believe that inflation is close to its peak and should start falling back over the coming months.
David Kern, the economic adviser to the British Chambers of Commerce, has said that, despite the latest rise in inflation, the Bank of England must focus on further rate cuts.
Mr Kern commented: “The 5.2 per cent annual CPI inflation is higher than expected, mainly due to rises in gas and electricity bills. While the figures are worrying, it seems very probable that the CPI figures signal the peak in the recent upsurge driven by food and energy costs.
“With oil prices well below recent peaks, and economic activity weakening, CPI inflation is set to slow sharply over the next year, probably falling below the 2 per cent target. The threat of recession remains higher in the short term than the risks of higher inflation.”
Mr Kern added that business would like to see the cost of borrowing drop by another 0.5 per cent: “The Bank of England must continue cutting interest rates in order to consolidate the positive impact of the bank recapitalisation programme and last week’s internationally co-ordinated interest rate cut. We urge the MPC to cut rates to 4.25 per cent in November, and to bring rates down rates to at least 4 per cent in the following months.”