Bank of England chief economist says there’s still ‘some work to do’ fighting inflation – business live

Huw Pill then explains that the Bank of England needs to see evidence that the persistent component of inflation is falling.

This is the parts of inflation that will still be there in 18 months or two years, when the impact of the Bank’s interest rate increases have been fully felt, he says.

He points out that the rise in natural gas prices drove up inflation, while recent falls have helped to bring the headline rate down again.

Pill says the Bank has “done a lot” – raising interest rates by over five percentage points (from 0.1% in autumn 2021 to 5.25% at present).

Q: So, are you preparing the markets and the public for possible tough action ahead?

Pill says it depends what you mean by ‘tough action’.

But he reiterates that the key issue is the ‘persistent’ component of inflation, which is associated with “domestic pricing decisions, domestic cost dynamics and domestic wage-setting behaviour”.

[In other words – the extent to which firms raise prices, and workers achieve pay rises to protect the from inflation.]

Pill says:

Will that unwind on its own accord, as we’ve seen with the reversal of gas prices?

History would tell you that’s less likely to reverse on its own accord, or if it does it will be a slower process.

The chief economist of the Bank of England is warning this morning that the BoE has more work to do to meet its inflation target.

Huw Pill is speaking at an event organised by the thinktank OMFIF (the Official Monetary and Financial Institutions Forum).

And he begins by insisting that the BoE is committed to achieving its mandate to bring UK inflation to 2%.

UK inflation was 6.7% in August (we get September’s reading on Wednesday), which Pill points out is still well above the Bank’s target.

And although headline inflatiion has fallen from the 40-year highs seen last autumn, Pill hints that the Bank may take further action to bring it sustainably to 2%.

He tells his audience:

We still have some work to do, in order to get back to 2%.

And we probably have some work to do, to ensure that when we get back to 2% we do so in a way that is sustainable through time.

The fact headline inflation is now falling, is “certainly not sufficient” for us to be able to say that the job is done, Pill adds.

After a positive start, European stock markets have now turned south.

The pan-European Stoxx 600 index is down 0.35%, with Germany’s DAX and France’s CAC both losing 0.5%.

The FTSE 100 is now flat in London.

Market sentiment remains under pressure, reports Pierre Veyret, technical analyst at ActivTrades, who adds:

Risk aversion still seems to prevail as investors wait for further geopolitical developments in the Middle East, hoping the military conflict will not escalate further or directly involve other nations.

There are fresh signs today that the UK’s housing market is cooling, under the weight of high interest rates.

Rightmove has reported that asking prices are rising by the weakest amount for this time of year since the 2008 financial crisis.

The average new asking price rose by 0.5% in the month to 7 October to £368,231, its data shows. However, the price of houses being sold dropped by 0.8% in the 12 months to early October, with the number of agreed house sales down by 17%.

Here’s the full story:

Victoria Scholar, head of investment at interactive investor, says,

14 consecutive rate increases from the Bank of England have taken their toll on mortgage appetite and house prices while sellers are less incentivised to list their properties online.

The shortage of available housing supply and sky-high rental costs means that the number of buyer enquiries per listed property remains elevated at 8% above pre-covid levels.”

Over in Poland, shares are rallying after an exit poll suggested a coalition of opposition parties could be heading to power after last weekend’s election.

The poll suggested the ruling Law and Justice (PiS) party had won the most votes, but that a combined opposition coalition led by former prime minister and European Council president Donald Tusk could form the next government.

Tusk was quick to declare victory last night, claiming:

“It’s the end of the evil times, it’s the end of the PiS rule, we made it,”

Poland’s WIG 20 equity index jumped as much as 4.9%, before settling 2.6% higher.

The zloty has also strengthened on the foreign exchange markets:

Bartosz Sawicki, market analyst at Conotoxia fintech, explains why the markets like the sound of a Tusk win:

Forming a pro-European government that would prioritize the rapid unlocking of funding for the National Recovery Plan worth €35bn would reduce the political risk premium.

The weak growth of Poland’s main trading partners and the gradual recovery of consumption point to an inevitable shrinking of the current account surplus.

An increased flow of EU funds would help the economy regain traction and cement a favourable balance of payments dynamics. A rapprochement with Brussels would be undeniable, but a potential presidential veto could hamper a breakthrough in reforming the judiciary system.

Larry Elliott

The similarities between 1973 – the year of the Yom Kippur war – and 2023 are “not exact”, our economics editor Larry Elliott writes.

He cautions, though, that “the idea that the world could again be on the brink of something nasty is inescapable”.

Having spent last week in Marrakech with the International Monetary Fund, and top finance ministers and economists, Larry warns:

It would be wrong to say that the IMF, the World Bank and the rich countries that dominate them are not worried. They are. The problem is they are not nearly worried enough.

Here’s the full piece:

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Concerns over further escalation in the Middle East are keeping investors cautious, more than a week after Hamas’s devastating attack on Israel.

Global markets are bracing for more volatility, as Israel prepares for a likely ground offensive into Gaza, and hundreds of thousands of Gazans move to the southern part of the Gaza Strip.

Fears that the Israel-Hamas war will develop into a regional conflict have pushed up energy prices over the last week.

Brent crude oil is trading over $90 per barrel this morning, up from $85 per barrel on 6th October, the day before Hamas’s attack.

Oil has climbed on concerns of supply disruptions, with Israel having temporarily closed its Tamar gasfield last week.

Chris Weston, head of research at Pepperstone, explains:

The focus has been rerouting that gas from the Leviathan gasfields in the north of Israel – if the market feels this gas field could be impacted then could see a spike in EU natural gas.

Many energy experts see the risk of a supply event here as fairly low, but should developments escalate on various fronts, then the market will increase the possibility of a disruption.

Most Asia-Pacific stock markets have fallen today, as risk sentiment is hit by concerns over the Israel-Hamas war.

Japan’s Nikkei has lost over 2%, while China’s CSI 300 index is down 1.1%, and South Korea’s Kospi 200 is 0.7% lower.

Reports that the US is planning to tighten sweeping measures to restrict China’s access to advanced semiconductors and chipmaking gear are also hitting shares in Asia.

Traders are edgy, rather than panicking, about the situation in the Middle East, noting that the US secretary of state, Antony Blinken, said yesterday that Arab states have a “determination” that the conflict doe not spread.

There are also reports that American and Israeli officials are discussing the possibility of a visit to Israel soon by US President Joe Biden.

Jim Reid, strategist at Deutsche Bank, says:

In the overnight session there has been some relief that a ground offensive hasn’t begun yet in Gaza and that diplomatic channels seems to be open for now.

President Biden is considering a trip to Israel in the next week which will be an important event.

John Velis, foreign exchange and macro strategist at investment bank BNY Mellon, predicts geopolitical tensions will push up the US dollar, telling clients:

Given rising geopolitical risk in the Middle East, we see the dollar’s safe-haven bid returning and so sideline our more fundamental-based reservations about limited dollar upside.

Also coming up today

European finance ministers will discuss the economic outlook when they meet for a Eurogroup meeting today. US Treasury Secretary Janet Yellen is expected to attend, too.

Sam Woods, deputy governor of Prudential Regulation at the Bank of England, will speak at the City Banquet, at London’s Mansion House.

The agenda

• 9am BST: Italian inflation report for September

• 9.30am BST: Bank of England chief economist Huw Pill speaks about the ‘the current economic outlook.

• Today: Eurozone finance ministers hold a Eurogroup meeting

• 9.10pm BST: Sam Woods, CEO of the Prudential Regulation Authority, gives speech at the City Banquet, Mansion House