- EY Item Club
It is expected that UK may soon follow the path of the Euro zone and slid into deflation in the coming months, thus forcing the Bank of England to postpone a hike of interest rates until 2016. The ongoing decline in oil prices will push Britain's cost of living to 0% in 2015, providing an opportunity of monetary policy normalization only in the beginning of next year, the EY Item Club is expected to report. Consumer inflation is likely to turn negative in the mid-2015, influenced by the persistent collapse in global commodity prices. One of the UK's most influential forecasters is also likely to upgrade its economic growth outlook for 2015 to 2.9%, up from 2.4% expected earlier, as low consumer prices are seen to have a reflationary impact on the nation's economy. The drop in global commodities will increase spending power of Britons, spurring further the UK's recovery.
Forecast made by the BoE in its November inflation report suggested a rate lift would possibly take place in the autumn 2015. However, last week inflation data showed consumer prices climbed at the slowest-ever pace in December, inching higher just 0.5%, forcing the BoE Governor Mark Carney to write a letter of explanation to the Chancellor. It is expected that Carney will be forced to continue explaining for many months to come, as inflation is unlikely to exceed the 1% level until 2016.
© Dukascopy Bank SA