LONDON (Reuters) -Bank of England Governor Andrew Bailey said on Monday that he still thought that inflation was likely to fall sharply next year, broadly in line with the last set of forecasts from the British central bank in May.
The BoE is about to start work on a new set of forecasts for release on Aug. 4, alongside its next interest rate decision, Bailey said.
“I always go into forecasts with an open mind, and that’s critical, but I think the basic fundamentals of that profile remain in place today,” Bailey told lawmakers on parliament’s Treasury Committee .
Inflation was likely to be back at its 2% target in around two years’ time, he added.
However, possible further upward pressure on gas prices following Russia’s invasion of Ukraine, or more persistent domestic cost pressures could change that, Bailey said.
The BoE had previously forecast that inflation would peak at just over 11% in October this year when regulated power tariffs are set to jump again.
Investors are assigning a nearly 70% chance of a bigger-than-usual, half-percentage-point rate hike by the BoE on Aug. 4. The BoE has already raised borrowing costs five times since December.
The BoE said last month it was ready act “forcefully” if needed to stop the recent jump in inflation from becoming embedded in the economy.
Bailey told the lawmakers on Monday that there was “a range of things” on the table for the BoE’s Monetary Policy Committee in August and it had to assess how much the shock to incomes from inflation would bring down inflation in itself.
(Reporting by David MillikenWriting by William Schomberg)
