UK inflation reached its highest level since January 2015, albeit that level is just 0.2%. This continues the trend of inflation being at or very close to zero and places little pressure on the Bank of England to lift interest rates. Ben Brettell, Senior Economist, Hargreaves Lansdown;
The Bank’s most recent minutes reiterate its expectation for inflation to increase modestly in the coming months, though they also note that continued weakness in the oil price makes it likely this will be more gradual than previously forecast. Core inflation, which strips out volatile components like food and energy, rose to 1.4% in December from 1.2% the previous month. If this upward trajectory continues it could offer some comfort to those hoping for a rate rise. However, other economic data has been weak recently – wage growth is predicted to have slowed again when figures are released tomorrow, and productivity remains a puzzle. Recent industrial production figures disappointed, suggesting the UK economy decelerated toward the end of 2015, and is still heavily reliant on consumer spending.
Gertjan Vlieghe this week became the latest MPC member to dampen expectations of a rate rise in a very ‘dovish’ speech, noting that “the appropriate real interest rate for the economy might be very low for years to come”.
