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Tag Archives: UK inflation

Having reduced interest rates over the summer, the Bank of England last week confirmed it’s no longer planning to cut again. That’s a good call, not least because the original shift down was anyway a mistake.

After rates were reduced from 0.5pc to a record low of 0.25pc in August, following the UK’s referendum to leave the European Union, Bank Governor Mark Carney indicated they could fall even further. The Monetary Policy Committee now admits the UK economy is significantly stronger than it had expected in the wake of the Brexit referendum. Ergo, such “forward guidance” of even lower rates has expired.
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UK inflation was apparently just 1.6pc during the year to March. That’s a four-year low. The Consumer Price Index has now fallen for six consecutive months – the first time that’s happened since the CPI inflation measure was introduced in 1997.

For more than five years, stubbornly high inflation has coincided with job market weakness and a related fall in earnings. As a result, average real wages have plunged by around 10pc, the most severe squeeze on post-inflation pay in this country for more than half a century.

That’s why there’s much excitement in political circles that rock-bottom inflation is now coinciding with faster nominal wage growth. After increasing by 1.4pc and 1.5pc in 2012 and 2013 respectively, average earnings rose by 2pc year-on-year during the three months to February.
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