Interest rates in the United Kingdom have been high for around 15 years. As their inflation held steady last month, which defied the expectations of an increase, there is the hope that the Bank of England would soon begin to cut interest rates. The Consumer Price Index rose 4% on year in January, which was the same rate as in December. Economists were expecting inflation to go up to 4.2%. Core inflation stayed higher than the CPI rate, but was stable at 5.1% last month and in December. Again, it was also lower than the 5.2% expectations. These lower-than-expected rates bring some hope that the Bank of England will cut interest rates soon, as they are currently at 5.25%.
Still, the rates are above the 2% target of the central bank. Service inflation has been rising, reaching 6.5% in December. The steady rate of inflation does not reflect the forecast of inflation in the United States, in which consumer prices went up 3.1% from the previous year. The pressures on inflation come from household services and housing, because of the regulator OFGEM’s energy price cap, which contributed to an increase in gas prices of 6.8% in January. Food and nonalcoholic beverages’ inflation, on the other hand, decreased 1% in December. One thing that strobe down inflation was the easing in household goods, driven by discounts during post-Christmas sales. After the last numbers were released, Paul Dales, Capital Economics Chief, said that the previous numbers indicate that inflation numbers could fall below 3.5% in February, and even below the target (2.0%) in April. According to him, this would make BOE more likely to cut interest rates starting in June.
3 comments:
I'm sure that this energy price cap is affecting not just the UK's inflation but all of Europe's inflation as well. I was just in Europe recently and I can tell you that Americans would not stand for the gas prices Europeans are seeing in their home countries. I wonder what effect cuts in interest rates would have on gas prices.
Wouldn't be shocked if rate cuts were being implemented to boost the economy in the wake of a likely UK recession. Hope cuts don't raise inflation too much.
Dom brings up an impending UK recession, and I believe that is an important thing to consider. Uncertainty does not benefit an economy, and with current status of the Royal Family, things may not be looking good in the near future. For the sake of their market, I hope to see rates come down soon.
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