UK inflation climbs to 11-month high; Carney remain in wait-and-see mode

Source: Dukascopy Bank SA
"The year has turned and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates. The world is weaker and UK growth has slowed."
 -  Mark Carney, Bank of England Governor

The British inflation climbed to the highest level in eleven months, with transport costs, mainly air fares and petrol being the main contributor to the rise. According to the Office for National Statistics, the consumer price index increased 0.2% in December amid a hefty surge of 46% in air fares in the reported period. Moreover, core inflation, which strips out volatile components such as energy, food and alcohol, rose to 1.4%, reaching the highest rate in more than a year. However, the data showed CPI for the year as a whole in 2015 was zero, the lowest annual reading since records began in 1950, compared with 1.5% in 2014. Benign price pressures and slowing wage growth have forced the Bank of England to refrain from hiking interest rates any time soon, particularly as wage growth has been slowing and the weakness in the world's economy has been undermining British output. Investors' expectations stand for an interest rate rise to occur not earlier than the third quarter of this year.

Furthermore, BoE Governor Mark Carney confirmed that the British economy is not yet strong enough to withstand interest rate hike. The ongoing decline in oil prices, volatility in China and a slowdown in wages growth in Britain have moved the BoE further into wait-and-see mode.


© Dukascopy Bank SA

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