18 Feb 2014
UK inflation continues to decline but Carney will not be rushed
FXStreet (London) - More good news for Bank of England governor Mark Carney as headline UK consumer price inflation falls below 1.9 percent, falling below the BoE 2 percent target for the first time since November 2009.
The dip below the inflation target coincided with BoE monetary policy committee shift in focus from jobs data to a broader inflation-based outlook. The UK unemployment rate currently stands at 7.1 percent, just off the 7.0 percent threshold below which the BoE will consider hiking rates. However, Mark Carney has repeatedly stressed that the 7 percent level constitutes a threshold level, rather than a trigger for rate hikes from the current record-low 0.5 percent
The decline in CPI was helped by an accelerated drop in fuel prices, from -1.4 percent year-on-year to -1.8 percent. Core CPI (ex food and energy) fell to 1.6 percent from 1.7 percent.
At the same time, producer price inflation input prices fell further than expected to 3.1 percent year-on-year with PPI output prices up 0.9 percent, easing any pipeline inflation pressures.
The declining price pressures should ease real wage concerns. While the labour market has seen a strong run of recovery, average earnings in real terms remain at similar levels to those of 2002-03. However, continuing labour market improvements and a broadly strengthening UK economy should continue to exert some upwards wage pressure. Though this will ultimately push up on inflation numbers, it will be welcome inflation for the BoE.
Although there are some calling an early rate hike, the BoE is unlikely to be rushed, allowing unemployment to run further and for the labour market to tighten the slack in wage conditions. The headwinds that threatened the UK economy in terms of declining consumer spending on real wage pressures have thus far failed to materialise, with retail remaining resilient.
Though the BoE is not yet near a cycle of tightening monetary conditions, the sound underlying macro conditions should continue to support sterling strength, particularly against the uncertain backdrop of some of its G10 peers.
The dip below the inflation target coincided with BoE monetary policy committee shift in focus from jobs data to a broader inflation-based outlook. The UK unemployment rate currently stands at 7.1 percent, just off the 7.0 percent threshold below which the BoE will consider hiking rates. However, Mark Carney has repeatedly stressed that the 7 percent level constitutes a threshold level, rather than a trigger for rate hikes from the current record-low 0.5 percent
The decline in CPI was helped by an accelerated drop in fuel prices, from -1.4 percent year-on-year to -1.8 percent. Core CPI (ex food and energy) fell to 1.6 percent from 1.7 percent.
At the same time, producer price inflation input prices fell further than expected to 3.1 percent year-on-year with PPI output prices up 0.9 percent, easing any pipeline inflation pressures.
The declining price pressures should ease real wage concerns. While the labour market has seen a strong run of recovery, average earnings in real terms remain at similar levels to those of 2002-03. However, continuing labour market improvements and a broadly strengthening UK economy should continue to exert some upwards wage pressure. Though this will ultimately push up on inflation numbers, it will be welcome inflation for the BoE.
Although there are some calling an early rate hike, the BoE is unlikely to be rushed, allowing unemployment to run further and for the labour market to tighten the slack in wage conditions. The headwinds that threatened the UK economy in terms of declining consumer spending on real wage pressures have thus far failed to materialise, with retail remaining resilient.
Though the BoE is not yet near a cycle of tightening monetary conditions, the sound underlying macro conditions should continue to support sterling strength, particularly against the uncertain backdrop of some of its G10 peers.