We're back into a more normal economic situation, says Bank of England's Dave Ramsden

The UK economy is back into a “more normal situation” although future shocks cannot be ruled out, according to a senior figure at the Bank of England.

Dave Ramsden, Deputy Governor, Markets and Banking, made the comments in an interview with The Yorkshire Post during a trip to deliver a speech at Leeds University Business School.

Speaking after he delivered the address to staff and students, Mr Ramsden said: “We were dealing with incredible shocks when I last spoke to The Yorkshire Post in August 2022; Russia's invasion of Ukraine was still unfolding and the impact on energy prices was really beginning to be felt. We have seen energy prices fall back significantly. We've also seen food prices, which are very influenced by energy prices, fall back.

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He added: "We've seen goods prices fall back. The situation certainly looks more normal than it did and headline inflation reflects that.

Bank of England Deputy Governor, Markets and Banking, Dave Ramsden told The Yorkshire Post: "The key news we've had is inflation coming back to target but it's still right to describe things as normalising rather than fully back to normal." (Photo by  Henry Nicholls/PA Wire)Bank of England Deputy Governor, Markets and Banking, Dave Ramsden told The Yorkshire Post: "The key news we've had is inflation coming back to target but it's still right to describe things as normalising rather than fully back to normal." (Photo by  Henry Nicholls/PA Wire)
Bank of England Deputy Governor, Markets and Banking, Dave Ramsden told The Yorkshire Post: "The key news we've had is inflation coming back to target but it's still right to describe things as normalising rather than fully back to normal." (Photo by Henry Nicholls/PA Wire)

"The key news we've had is inflation coming back to target but it's still right to describe things as normalising rather than fully back to normal.”

Given the kind of uncertainties out there in the world, we can't rule out that there will be future shocks, Mr Ramsden said.

He continued: “But at least we’ve got headline inflation very close to target. But within that, the one component of inflation I haven't mentioned, services inflation, is still quite high. We are seeing persistence in services inflation which is a consequence of the earlier shocks... The labour market, although it's loosening, is still relatively tight... Wage growth is still 4.75 per cent. That's not at present rates consistent with inflation staying sustainably at the 2 per cent target.

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"What we won't always have is those dampening impulses from energy, from food and goods. Is the recent trend of inflation being back at target going to continue? Or is inflation going to rise somewhat as the services contribution to inflation is less hidden by the negative impulses we have had from energy prices?

The disinflation process in services so far has been relatively symmetric, Mr Ramsden said.

“It hasn't been as sharp and symmetric as it was in energy and, or indeed in, food or goods. But it does seem to be that disinflation is taking place. My point here is that we've assumed in the forecasts we've published that that process will continue but it will take longer for the inflationary pressure in services to unwind than they took to emerge.

"That's plausible and is the judgement that underlies the central forecasts but it's also possible, given how much a driver of services inflation wage costs are, were the labour market to continue to loosen (vacancies have fallen by over a third from their peak) were demand in the wider economy to not be as robust as we’re forecasting then you might see disinflation progress faster and, in that possible future, the gradual approach we are taking to reduce Bank Rate might not be so warranted. There might be the potential to reduce Bank Rate more quickly.

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"But that's not where we are now. We will have to keep under close review what's happening in the labour market and what the impact, for example, of the Budget is on the labour market but we're also challenged by the fact we don't have our official data from some of these labour market measures at present. Given the uncertainties we're dealing with, the gradual approach we're taking is appropriate at the moment."

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