Carney reveals United Kingdom inflation expectations

Lucy Hill
October 18, 2017

According to the statistics agency, the overall inflation rate in the United Kingdom is higher than in most other European Union countries.

Inflation in Britain has hit 3% for the first since early 2012, official figures showed on Tuesday - a development that reinforces expectations that the Bank of England (BoE) will raise interest rates next month for the first time in a decade.

In the meantime, the feed through from the recent increase in British Gas electricity tariffs and a further rise in motor fuel prices combined to push overall CPI up on the month by 0.3 percent and stimulated the annual rate to 3 percent.

The CPI data this morning revealed that prices of consumer goods, boosted by food and transport, are climbing at their highest rate since 2012.

The annual consumer price inflation of United Kingdom continued to accelerate in September. But much of the increase has been caused by the fall in the value of the pound since last year's Brexit vote which is likely to be a temporary driver of price increases. Inflation has actually trebled in the year from September 2016, when inflation was just 1 per cent.

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Grilled by the House of Commons Treasury Select Committee, Carney stuck by the Bank of England's revised estimates that inflation would peak in October or November this year. "We will be back to normal, let's say, in terms of the trade-off without that depreciation effect".

The Bank governor is required to write to the Chancellor, Philip Hammond, if inflation moves more than one per cent above the 2 per cent target level.

Inflation in Britain rose at the fastest pace in over five years in September, remaining above the Bank of England's 2% target for the seventh consecutive month, after breaking through the threshold for the first time in three years in March.

Also, there is a belief that the bank will lose credibility if once again it puts the market on notice for a rate hike and fails to deliver.

Nathan Sweeney, senior investment manager at Architas, agreed a rate rise was now likely next month but said the bigger question was where the Bank went to after that, given that inflation had probably now peaked and the economy was slowing down in response to Brexit.

Other reports by TheDailyFarc

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