For the first time since the first half of the year, the rate of British inflation slowed down in December, but still exceeds the target level by a full percentage point.
According to the UK statistical office’s (ONS) data, consumer price indices excluding housing costs were 3 percent higher than in the previous year. In November, 3.1 percent, in October and September, the 12-month British inflation rate for the entire basket was 3 percent.
Last June, the annual inflation rate slowed down last month.
The annual inflation target for the British Government for Bank of England is 2 per cent. If, from this rate, in a given twelve-month period, inflation is greater than one percentage point in any direction, the Governor of the British Central Bank shall, by open letter, explain the reasons for the Finance Minister.
Mark Carney, Governor of the Bank of England, had been obliged to write this letter to Minister of Finance Philip Hammond following the announcement of November’s inflation figures.
After 0.1 percentage points slower than December’s inflation in the previous month, this is not necessary now.
Carney had previously been forced to write an explanatory letter in October 2016, but because of inflationary pressures in the opposite direction, in September alone, annual inflation was only 0.9 percent.
At the beginning of November, the Bank of England raised interest rates for the first time after 10 years, raising the benchmark by 0.25 percentage points to 0.50 percent. According to the central bank’s explanation, the remaining low capacity surpluses still in the UK economy will run out in the coming years, and the inflationary pressures of domestic inflation are likely to increase.
One of the largest financial and economic analysts in London, Capital Economics, expects inflation to be downward, but Bank of England continues the monetary tightening cycle this year.
Paul Hollingsworth, Chief Economist at Capital Economics’s UK economic analysis, commented on the quick analysis of December’s inflation data on Tuesday’s announcement that the annual inflation rate of volatility from core inflation fell from 2.7 per cent to 2.5 per cent last month, 80 per cent in the UK’s total domestic product , declined from 2.8 percent to 2.5 percent, indicating that underlying inflationary pressures are weak in the UK economy.
According to the expert, it is unlikely that the Monetary Council of the Bank of England would feel urgent a new interest rate increase within a very short period of time.
However, according to Hollingsworth, if Capital Economics correctly predicts that the British economy will deliver stronger performance than wider consensus expectations this year and wage growth will accelerate in the coming months, the Bank of England may announce another rate increase in May much earlier than May the market players are waiting for.