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Though that remains above the bank’s target of 2%, it raised
hopes that the upward pressure on prices emanating from the
spike in oil and gas prices after the start of the Iran war on
Feb. 28 may have been less than anticipated.
Economists think rate-setters will opt against hiking rates over
coming months, but only if the recent fall in energy prices is
sustained. The pressure on central banks since the outbreak of
hostilities in the Persian Gulf has been to raise rates. The
European Central Bank hiked last week while on Wednesday, half
of the policymakers at the U.S. Federal Reserve said that they
could support a rate hike later this year.
Andrew Bailey, the Bank of England governor, said the recent
decline in oil prices has been “encouraging” while noting they
are still higher than before the war, a steer to markets that
higher U.K. borrowing costs are possible.
“Whatever happens in the future, the higher energy prices of the
past four months mean there’s already some inflationary pressure
in the pipeline,” he said. “The Bank’s job is to make sure that
doesn’t turn into sustained inflation above our 2% target.”
Two of the nine members of the Monetary Policy Committee remain
concerned enough about those pipeline pressures that they voted
for a quarter-point increase.
Because of the recent pullback in oil and gas prices, the bank
has trimmed its forecast for inflation in the final quarter of
the year to 3.25%. The hope is that inflation then starts to
drop next year, freeing up the bank to cut rates, allowing
mortgage lenders to offer cheaper home loans.
“If energy prices continue to moderate then the debate could
once again turn again to rate cuts, but that might have to wait
until next year,” said Luke Bartholomew, deputy chief economist
at asset management firm Aberdeen.
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