Forex News

UK inflation – heading in the right direction

14/02/12 @ 10:40 GMT by Michael Derks, Chief Strategist

With justification, it can now finally be pronounced that UK inflation is definitely heading downwards. Consumer prices fell 0.5% in January, aided by very sharp declines in footwear and clothing (-4.9%), furniture and household goods (-2.2%) and transport (the cost of air fares plunged 28.4% after a 40.9% increase in December). In YoY terms, inflation is now 3.6%, a 14mth low. Core consumer prices fell even more sharply, down 0.8% in January. In the past nine months, the core CPI is only up by 0.6%, which ought to be tremendously comforting for the BoE Bank’s policy-makers. Indeed, the Banks expects inflation to decline to below 2% by the fourth quarter, and judging by these figures, it is definitely on track to achieve this. The high street is in the grip of intense deflation as consumers remain reluctant to spend amidst fiscal austerity and a crippling decline in real incomes. Import prices are decreasing, unemployment is rising and gas prices are falling in response to the very mild winter. Band of England Governor King will be delighted, if only because his perpetual letter-writing to the Chancellor each month after the latest inflation disappointment will soon cease.
Tags: UK

FxPro
Insights Team

Michael Derks

Chief Strategist

Simon Smith

Chief Economist

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