British Inflation Rate Unexpectedly Drops Back Below Zero
Comment of the Day

October 13 2015

Commentary by Eoin Treacy

British Inflation Rate Unexpectedly Drops Back Below Zero

This article by Jill Ward for Bloomberg may be of interest to subscribers. Here is a section: 

The figures will reinforce the view that the BOE is at least months away from raising its benchmark interest rate from a record-low 0.5 percent. The BOE said last week that its near-term outlook for inflation had weakened since August and that price growth will probably stay below 1 percent until spring 2016, well below its 2 percent target.

“Though prices have fallen slightly over the past year, the risk of persistent deflation is remote,” said Andrew Sentance, an economist at PricewaterhouseCoopers and a former BOE policy maker who is in favor of a rate increase. “As lower food and energy prices start dropping out of the annual inflation rate, we should expect inflation to move back toward 2 percent next year.”

Just one BOE policy maker, Ian McCafferty, voted to raise rates last month. Testifying to lawmakers on Tuesday, he said the low reading is “largely due to those transitory impacts of oil and commodity prices” and they will disappear from the calculation early next year.

Bank of England officials have been weighing domestic strength against international risks in recent months. While the labor market is tightening, policy makers are still assessing the impact of the global slowdown on the U.K. economy

Eoin Treacy's view

The Bank of England has helped foster a recovery in UK economic activity and is unlikely to endanger it by being the first major economy to raise interest rates. Imported deflationary forces in the energy, food and clothing sectors give the central bank ample room to wait and see what other countries decide to do.

The FTSE-350 Index has bounced back to test the region of the 200-day MA and will need to hold the 3250 area during any unwind of the short-term overbought condition if potential for continued higher to lateral ranging is be given the benefit of the doubt. 

Back to top

You need to be logged in to comment.

New members registration