"It's welcome news that inflation is down and on target. As the economy grows and jobs are created this means more security for hard-working people."
- Mark Carney, Bank of England Governor
Finally, inflation in the U.K. has reached the desired level of 2%, as the Consumer Price Index inched back to 2% in December from 2.1% a month earlier for a first time since November 2009. Analysts, however, expected no change at all. On a yearly basis CPI climbed 0.4%, accelerating from a 0.1% gain in the preceding month. Core measure, which strips out volatile food prices, rose just 1.7% following a 1.8% increase seen in November. The Office for National Statistics said the main downside pressure came from slower increases in the prices of food. Discounts in shops during Christmas period also pushed the inflation rate lower.
The fact that inflationary pressure normalized to the official target provides some relief to the policymakers, who were not expecting it to happen until the first quarter of 2014. The economy has been suggesting from high inflation since December 2009, while in September 2011 the CPI reached a post-recession high of 5.2%. Healthy inflation allows Mark Carney and his team to keep borrowing costs at present, record-low level, for longer to assure the recovery is sustainable and in a longer term the economy will prosper. As the U.K. central bank is supposed to keep interest rates at present level, the Pound fell to 1.6396 soon after the report; however, recovered to earlier levels later and was changing hands around 1.6445.
© Dukascopy Bank SA