Economists forecast UK inflation drop in January 2018

On Tuesday 13th February 2018, the Office for National Statistics (ONS) is going to release data regarding January’s 2018 UK Consumer Price Index (CPI). The CPI is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods. The CPI is regarded as a key indicator for measuring inflation and changes in purchasing trends.

The consensus among market analysts is that inflation in the UK, during January 2018, fell to 2.9%, on an annualised basis. Economists at Danske Bank believe that the fall was driven by ‘a smaller contribution from the energy component, as a big monthly in January 2018 falls out, and food.’ On a month-to-month basis, the UK’s CPI is expected to have declined by 0.4%. Core inflation is expected to have risen from 2.5% in December 2017 to 2.6%, on a year-to-year basis. Core inflation excludes seasonally volatile products such as energy and food in order to capture an accurate calculation. In general, a high inflation reading is seen as positive for Sterling, while a low reading is regarded as negative for the British currency.

On Tuesday 16th January 2018, the ONS released December’s 2017 inflation data. The ONS report stated that UK’s inflation, during December 2017, had fallen to 3% from 3.1% in November 2017, in line with analysts’ expectations. The ONS report said that ‘inflation has been running at roughly the same rate since last spring following significant increases, partly due to the weaker British Pound after the European referendum. It remains too early to say whether today’s slight fall is the start of any longer-term reduction in the rate of inflation.’ Prices of air fares and the falling costs of toys and games had pushed inflation lower in December 2017.

On Thursday 8th February 2018, the Governor of the Bank of England (BoE), Mark Carney, said to journalists that ‘it will be likely to be necessary to raise interest rates to a limited degree in a gradual process, but somewhat earlier and to a somewhat greater extent that we had thought in November 2017. Demand growth is expected to exceed the diminished supply growth.’

According to the minutes of the latest Monetary Policy Committee (MPC) meeting, the MPC sees the UK economy growing quicker that anticipated through 2020, increasing the risk of overheating. A Bloomberg report on 8th February said that money markets now see a 79% chance that the BoE will increase borrowing costs in May.

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