James Smith, developed markets economist at ING, points out that the UK inflation has once again fallen back below the Bank of England’s 2% target and the fall from 2.1% to 1.8% in January largely reflects the dip in global oil prices towards the end of last year.
“Our commodities team expects prices to stabilise more-or-less this quarter, which should mean a more benign year for UK inflation. Depending on what happens to petrol prices, we expect headline CPI to remain fairly sticky in the 1.5-2% region for much of this year.”
“For the Bank of England though, what matters is where inflation goes beyond 2019.”
“Whether core inflation does respond to higher wage pressures relies partly on corporates having sufficient pricing power to pass the costs on. In the current consumer environment, this may not be the case.”
“As ever though, the outlook for interest rates really depends on Brexit, and with a growing likelihood that the saga could stretch to the eleventh hour, the economy is in for a bumpy ride over the next few weeks.”
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