Janet Henry, chief global economist at HSBC, weighs in the the sharp fall in U.K. inflation data and what it could mean for the Bank of England’s forthcoming interest rate decisions.
We had a pivot last week from the FED but the UK numbers today telling us perhaps the bank of England may not be too far behind a 3.9% handle on UK inflation now what’s your reaction um you say the the bank of England may not be too far uh behind but
I think it will be behind the others I mean this is a good release this is the release for November it did come in a bit lower than expected um but on Headline we know that a lot of that is the energy story you know this time a
Year ago energy was adding about four and a half five percentage points to overall inflation now it’s detracting about one percentage point so actually for me the good news was in core CPI that came in lower than expected that’s where UK inflation has been so much more
Kind of rigid stickier than you for instance in Europe um or indeed the United States so core inflation coming in at 5.1 much better a few kind of exceptional moves in there it seems to be more driven by recre creation and culture computer games apparently played
A role so I wouldn’t get overly excited but but it is it is good news um but they’ll need to see further progress because they’re not going to get much help from energy um even before the recent developments this week through the course of 2024 they need to see that
Core inflation move steadily lower Janet you’re sounding like a central banker there don’t get too carried away with rate cuts at this point but when it comes to a pivot and timing markets it’s all important isn’t it who else is going to Pivot when they’re going to Pivot and
What sort of rate Cuts we’re going to get so what’s the timing then for the bank of England and What scenario do you see on the rate cutting side for 2024 well I think the markets have got you know maybe a little bit ahead of the
Game we have got rate cuts from all the major central banks um but we think the fed and the ECB will lead the way we we’ve got those rate cutting rates for the first time in June for the bank of England we think that the First Rate cut
Um happens um in in August so headline we are looking for headline inflation to fall materially further um towards the middle of next year um but um you know we are seeing some signs of a softening labor market UK wage growth is a lot higher um than elsewhere we will need to
See wage growth Trend a little bit lower um and actually we’re not overly negative on the UK economy some are obviously warning of a very hard Landing um we don’t have that this fall and inflation is really better news for consumers in wage growth is currently higher than inflation so that real
Intense squeeze on real wages um is lessening so that offsets some of the slowdown in the labor market so August for the First Rate cut and less from the bank of England next year than from the federal ECB yeah Janet then in in relation to that good morning to you I
Mean does that does that bode well for UK growth then as well because if if wage if if rather the inflation story has declined a little bit more than wage growth has it is still a little bit higher than inflation is wage growth that means does that mean that the
Growth picture for this year because a little bit more spending rather next year should I say looks a little bit better um well yeah possibly um I I still think that everywhere is going to see a further slowdown um in the coming months but you know one of the key
Points that I keep making is this is a very unusual cycle usually when you see a sharp reduction in inflation like we have seen over the course of the last 6 to 12 months it is a consequence of of a recession or a big jump in unemployment
But because so much of this I mean growth hasn’t been good but there hasn’t been a recession um but because this time inflation has come down beforehand um consumers the price level is still high as as you rightly pointed out in your introduction the cost of living
Squeeze is still there the price level is still high but inflation is slowing more rapidly than wage growth and so yes relative to some of the expectations I think that UK growth May proed to be a little bit more um I suppose show more stabilization and modest signs of
Improvement through the course of 2024