Bank of England softens on inflation

The Bank of England issued its quarterly inflation report this morning and indicated that inflation may turn towards its target faster than predicted in its last report in August.

Figures released show that the CPI is running at 2.4 percent, slightly lower than expected, but still 20 percent above the Bank’s set target.

The Banks model was re-run using 5.0 percent interest rates, the charts in the report showed that CPI would overshoot the target rate marginally. This leaves room for another rise if pressure on wages increases [as is starting to be the case] next year.

The predictions are for growth running at around 3 percent for most of next year before dropping just below that mark two years out.

The Bank expects that ‘overall, the risks to growth and inflation are judged to be broadly balanced, though as in August, there is greater than usual uncertainty over the outlook for inflation.’

At the same time the Retail Prices Index (RPI) is pulling away and rose by 0.1 percent to 3.7 percent in the year to October. The RPI covers a broader basket of goods and services, some argue [as does The Business News Source] that it gives a truer picture of consumer costs and spending.

Whilst the CPI is the figure the Bank is measured by, members of the MPC who set interest rates, will be keeping a watchful eye on the RPI as this hits the man in the streets pockets more and is the figure that is likely to push up wage demands.

Overall the likelihood of increases next year ay have softened, but when other factors such as the continued growth in house prices are taken into account, the jury is still out. Keep an eye on the house price figures towards the end of the month.