The Deputy Governor of the Bank of England has indicated that the primary challenges to UK inflation are increasingly domestic in nature, especially as the country emerges from the energy crisis.
Sir Dave Ramsden noted that the recent reductions in inflation were largely due to a greater-than-anticipated decrease in energy costs, a relief following the upheaval triggered by Vladimir Putin’s invasion of Ukraine.
However, he expressed concerns about persistent inflationary pressures, particularly in the UK’s services sector, where inflation has remained unexpectedly high at 6.6%. This sector’s resilience against deflationary trends is partly due to its labour-intensive nature, which has been affected by wage increases.
Sir Dave emphasized that to bring inflation down from the current rate of 4.6% to the Bank of England’s goal of 2% by 2025, interest rates would need to be maintained at a higher level for a prolonged period.
He highlighted that the services sector, which makes up 45% of the Consumer Price Index (CPI) inflation calculation, is experiencing the impact of rising wages. In his conversation with Bloomberg TV, he stated, “We think it’s going to be really challenging to squeeze inflation out of the system. It’s driven by wages, where wage growth is still over 7%. The UK service sector’s heavy reliance on labour is a key factor in our projection that inflation will remain stubbornly high into the next year.”
