Updated
UK
inflation
figures
are
due
on
Wednesday
February
14
and
the
forecast
is
for
an
annual
rise
of
4%
(year-on-year)
for
the
Consumer
Price
Index
(CPI),
with
month-on-month
figures
showing
a
very
marginal
decrease.
This
data
will
cover
January
2024
and
will
therefore
be
the
first
inflation-focused
dataset
for
this
year.
After
a
period
of
declining
inflation,
December
figures
showed
a
surprise
increase
in
CPI
to
4%,
from
3.9%
in
November.
This
unsettled
the
UK
stock
market
–
and
interest
rate
cut
expectations
for
2024
–
but
was
not
actually
unexpected,
given
the
same
trend
was
already
evident
in
the
US
and
in
the
Eurozone.
CPI
hit
11.1%
in
October
2022
and
has fallen
back
to
3.9%
in
November
2023.
Given
the
pace
of
disinflation,
a
modest
uptick
should
have
been
factored
in.
But
inflation
being
double
the
Bank
of
England’s
2%
target
is
still
uncomfortable
for
policymakers
and
for
a
government
preparing
to
call
an
election.
What’s
Driving
UK
Inflation?
In
the
December
data
released
in
January,
alcohol
and
tobacco
were
inflationary
drivers.
After
a
cold
snap
in
January,
energy
bills
could
be
at
the
wheel
this
time;
oil
prices
also
rose
in
January
as
a
variety
of
geopolitical
events
tightened
supply,
but
petrol
and
diesel
prices
have
not
moved
much
since
the
start
of
the
year.
The
charts
below
give
an
idea
of
the
various
components
of
the
CPI
basket
and
how
they
have
changed.
On
February
1,
Bank
of
England
governor
Andrew
Bailey
made
a
surprise
prediction
in
the
press
conference
following
the
monetary
policy
report:
that
inflation
this
year
would
start
to
fall
back
towards
target
in
the
spring.
That’s
good
news
for
those
wanting
rate
cuts. But
it
will
then
start
to
rise
again
towards
the
end
of
the
year
to
2.75%.
The
bad
news
for
homeowners
yearning
for
a
return
to
ultra-cheap
mortgages?
Inflation
won’t
hit
target
until
2026.
You
may
recall this
target
has
already
been
shifted
to
2025
from
2024.
The
Bank
blamed
energy
prices,
which
are
driven
by
global
trends,
as
well
as
domestic
factors.
“CPI
is
projected
to
fall
temporarily
to
the
2%
target
in
Q2
2024
before
increasing
again
in
Q3
and
Q4,”
it
said.
“This
profile
of
inflation
over
the
second
half
of
the
year
is accounted
for
by
developments
in
the
direct
energy
price
contribution
to
12-month
inflation,
which
becomes
less
negative.
“This
reflects
the
persistence
of
domestic
inflationary
pressures,
despite
an
increasing
degree
of
slack
in
the
economy.
CPI
inflation
is
projected
to
be
2.3%
in
two
years’
time
and
1.9%
in
three
years.”
When
Will
UK
Interest
Rates
Fall?
It’s
become
a
ritual
for
journalists
to
ask
the
MPC
when
they
think
rates
will
start
to
be
cut
and
for
this
to
be
met
with
a
cautious
response.
The
Bank
is
ready
to
cut
rates
but
is
still
concerned
about
inflation
persistence;
while
Bailey
said
“things
are
moving
in
the
right
direction”,
he
countered
by
saying
“we’re
not
there
yet”.
This
call
of
response
of
“when?”
and
“not
yet”
will
no
doubt
stop
at
the
first
rate
cut,
which
markets
are
currently
pricing
in
for
June,
a
month
ahead
of
the
Federal
Reserve,
which
is
ahead
of
the
rest
of
the
world
in
its
own
rate-cutting
pathway.
After
the
February
rate
decision
and
meeting,
the
headlines
focused
on
the
“door”
being
“open”
to
rate
cuts,
which
ignored
the
fact
that
two
members
of
the
MPC
voted
for
a
rate
increase
of
25
basis
points.
UK
editor
Ollie
Smith
leaned
into
the
contrarian
case
for
another
hike
in
a
“what
if”
video
last
week.
Perhaps
the
Bank
does
have
more
rate
hike
left
in
this
cycle?
Certainly
this
wasn’t
on
the
agenda
when
investment
banks
lined
up
their
forecasts
in
December
2023
for
the
year
ahead.
Globally,
the
inflation
picture
is
similar,
but
the
exception
is
Japan.
In
the
West,
at
least,
inflation
has
fallen
sharply
from
2022
highs
but
is
still
too
high
for
central
banks
to
embark
on
monetary
easing
just
yet,
which
would
effectively
reverse
some
of
the
recent
rapid
rate
rises
seen
in
2022
and
2023.
After
the
last
Federal
Reserve
meeting
at
the
end
of
January,
rate
cut
expectations
were
pushed
back
to
May
from
March,
while
the
European
Central
Bank
gave
no
hints
of
the
when
rates
might
fall.
Article
written
by
James
Gard,
with
charts
by
Sunniva
Kolostyak
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