Tag Archives: Inflation

What should we make of this latest rise in UK inflation? Is it because of Brexit? And are interest rates now set to rise for the first time in almost a decade?

This was a sharp inflation increase. In February, the consumer price index was 2.3pc higher than in the same month in 2016, compared to a 1.8pc annual increase the month before. Less than six months ago, in October 2016, annual CPI inflation was remarkably subdued, at 0.9pc. Now UK inflation has shot above the Bank of England’s 2pc target for the first time since 2013.

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Back in mid-July, there was much febrile speculation UK interest rates would finally start rising before the end of this year. Amidst signs of stronger US growth, and predictions the Federal Reserve would raise borrowing costs over the next few months, it was widely assumed the Bank of England would follow suit.

Last Thursday, though, as the UK base rate remained at 0.5pc for the seventy-eighth successive month, speculation of a pre-year-end rate rise dissolved, as some of us predicted. Most analysts now forecast, once again, the Bank of England won’t make a move before March 2016.

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What are we to make of the UK’s ultra-low inflation rate? I think it should be viewed as good news – at least, on balance. We should remember that while low inflation feels nice, the main reason it’s happening isn’t necessarily beneficial to the UK economy as a whole. The recent collapse in oil prices puts a bit more money in our pockets, but it’s jeopardising our North Sea operations, one of the UK’s most important industries.

Above all, our reaction to low inflation, mustn’t dissolve into some kind of “deflation panic”. The zombie bankers, share-boosters and government debt junkies would then use it as an excuse for another round of mega-money-printing by the Bank of England, euphemistically known as quantitative easing. That would be seriously counter-productive – and must be avoided.
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Oil prices are on the up. Since early June, Brent crude has surged from just over $100 to reach $108.7 per barrel last week – a three-month high. West Texas Intermediate, the US oil benchmark, meanwhile hit $107, a level not seen since March 2012.

Rising energy costs hit consumers and firms, hinder growth and also stoke up inflation, especially in an oil-importing country like the UK. It’s particularly concerning that crude is rising despite growing evidence that the global economy is once again starting to slow.
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