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Inflation figures provide good news as Britain faces Brexit uncertainty

Source: Xinhua| 2018-10-18 03:12:09|Editor: Mu Xuequan
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LONDON, Oct. 17 (Xinhua) -- British inflation figures took a surprise and large downward tick in September, according to data released on Wednesday.

The Consumer Price Index (CPI) inflation figures released by the official data body, the Office of National Statistics (ONS), showed a hefty 0.3 percentage points fall in September.

The CPI figure fell from 2.7 percent in August to 2.4 percent, still above the primary target of 2 percent which governs the monetary policy of the central bank,the Bank of England (BoE).

The big fall was a surprise for experts and commentators who had expressed a consensus of a small fall to 2.6 percent.

Samuel Tombs, UK economist at Pantheon Macroeconomics,a financial data analysis firm, said "The slump in CPI inflation, after August's surprise jump, substantially eases the pressure on the MPC to consider raising the bank rate again soon, following better-than-expected GDP and wage data."

The drop in the headline rate was driven by 0.2 percentage point declines in inflation in the import-intensive core goods sector and services sector, to 1.2 percent and 2.3 percent.

A sharp fall in food inflation, to 1.5 percent from 2.5 percent in August, subtracted a further 0.1 percentage points from the headline rate.

The latest figures fill in a complex picture for monetary policy makers.

It also provides contradictory signals to the BoE, which sets the interest rate through its Monetary Policy Committee (MPC).

The MPC will note continued tightness in the labor market, indicating future labor shortages and increased wages. The surprise fall in inflation figures will lessen any pressures MPC members who might feel about a need to increase the bank rate from current 0.75 percent.

"CPI inflation likely will only edge down to 2.2 percent by the end of this year, as more price increases by energy suppliers will offset further declines in food and core goods inflation," Tombs said.

Inflation is likely to fall further over the coming months, said Tombs.

He added that energy's contribution to inflation should fall by 0.2 percentage points around the turn of the year, with new regulations on pricing.

Tombs said that recent falls in consumer goods import prices suggest that core goods inflation will continue to fall in early 2019, reaching zero by next spring.

"Unless services inflation strengthens markedly over the next six months, CPI inflation will undershoot the 2 percent BoE target," said Tombs.

While economic data are important considerations for monetary policy makers, the primary current influence is Brexit.

Uncertainty over its outcome will be the primary decider of the direction and rate of progress in the coming months for monetary policy, with BoE governor Mark Carney warning recently that rates could go down as well as up, depending upon the Brexit outcome.

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