Check on inflation allows interest rates to stay on hold - EY ITEM Club

25 March 2014

  • Share

Inflation remains in check…

  •  …and should fall further in March…
  •  ….leaving Carney plenty of room to manoeuvre

Martin Beck senior economic adviser to the EY ITEM Club, comments on today’s CPI inflation figures:

“CPI inflation continued its decline in February to 1.7%, the slowest pace since October 2009. While petrol and energy prices played the largest role in February’s fall, a stable rate of core inflation provides reassurance that underlying price pressures are well contained.

“Inflation will slow even further next month. Strong base effects from petrol prices will pull headline inflation down, and reports of a growing price war between the major supermarkets should weigh on food prices.

“Looking slightly further ahead, price cuts at the end of March by two of the major energy companies should impact on prices further in April. The rise in sterling will also cut import costs, while excess capacity will weigh on margins. We expect inflation to remain anchored around 2% for some time.

“There is now a distinct possibility that real wage growth will hit positive territory in April, helping to support household spending. And the low rate of inflation provides plenty of room for Mr Carney to leave interest rates on hold, helping to stimulate much needed investment growth and limiting household spending on mortgage payments.”