Monday 19 March 2018

Rising inflation 'not likely to deter' BoE from easing strategy

Experts still expect more money to be pumped into the British economy

David Milliken and William Schomberg

BRITISH inflation hit a nine-month high in February and looks set to rise further, but many economists said they still expect the Bank of England to give more help to the stagnant economy.

Annual consumer price inflation rose to 2.8pc, in line with economists' forecasts, after holding steady at 2.7pc since October, the Office for National Statistics said.

Inflation has exceeded the central bank's 2pc target since December 2009. Economists said yesterday's figures would probably not reduce the chances that the Bank of England will sooner or later pump more money into Britain's economy.

"What does it mean for the Bank of England? Not a lot. I don't think high inflation will act as a deterrent to their desire to do something else if they want to," said Peter Dixon, an economist at Commerzbank.

"You very much get the sense that they are more interested in growth than they are in inflation at the current time."


Sterling rose against the dollar after the inflation data, however, suggesting some investors see less leeway for the Bank of England to ease monetary policy further.

Bank governor Mervyn King and two other policymakers voted to resume the central bank's programme of asset purchases last month.

But other policymakers think there could be better ways to help Britain's economy, which is teetering on the edge of its third recession since 2008.

Chancellor George Osborne is widely expected to announce a review of the central bank's remit in his annual budget statement today, and the arrival of new Bank governor Mark Carney in July may herald more changes. High inflation has cut into British households' disposable income, and a further rise will be a concern to the government, which is already looking ahead to a 2015 election.

The Bank forecasts that inflation will exceed 3pc later this year due to upward pressure on the cost of imported goods and raw materials caused by sterling's near 7pc slide against the dollar since the start of 2013 and higher utility bills.


Yesterday's data suggested this was well under way. February's increase in consumer prices was driven by a mix of rises in household gas and electricity bills, higher petrol prices and increased costs for video games and photo equipment.

Factory gate prices showed their biggest month-on-month increase since April 2011, rising by 0.8pc, propelled by a 3.2pc jump in manufacturers' input costs.

Crude oil prices rose 7.1pc in February alone. This was their biggest surge since last August, pushed up by a mix of higher global prices for oil and the weaker pound.

Mr King said last week that the central bank was not seeking any further fall in sterling, which now appeared to be fairly valued, and Bank policymaker Ian McCafferty said the inflation consequences of a further rapid fall would be "damaging".

Last month the Bank forecast that inflation would exceed its 2pc target until early 2016, pushed up by long-term rises in energy prices and university tuition fees. (Reuters)

Irish Independent

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