A sharp fall in British consumer price inflation in September was driven by more volatile components, Bank of England rate-setter member Megan Greene said on Tuesday, a day after she said she favoured a gradual approach to cutting interest rates.
Consumer price inflation fell to a three-year low of 1.7 per cent in September from 2.2 per cent in August, below forecasts in a Reuters poll of economists. The services component – which the BoE generally views as giving a better sense of long-term inflation pressures – dropped to 4.9 per cent from 5.6 per cent.
“Services inflation … was the biggest surprise, actually in the latest print,” she said in a discussion with the Atlantic Council think-tank on the sidelines of the International Monetary Fund’s annual meetings in Washington.
“The biggest driver of that, though, was volatile accommodation, transport categories so I wouldn’t weight too much on that,” she said.
Greene voted against the BoE’s first rate cut of its current loosening cycle in August and on Monday she said she still favoured a cautious approach to cutting borrowing costs.
The BoE kept rates on hold at 5 per cent in September, but financial markets think another quarter-point cut in November is almost certain and see a high chance of a further move in December.
Greene said inflation pressures were fading, but perhaps not as fast as other BoE policymakers thought, and growth could turn out stronger as well as weaker than expected.
“I think, in the interest of not generating volatility, I tend to favour more of a gradualist approach,” she said.
