"The path of monetary policy, the path of interest rates is going to be calibrated very carefully to ensure that only when we see sustainable growth in jobs, in incomes and in spending, will we make adjustments"
- Mark Carney, BoE Governor
The U.K. economy has been highly volatile during the several months. After a rapid expansion and hawkish comments it is getting obvious the growth is loosing some of its steam. This fact is supported by this week's report from the ONS that showed the key measure of inflation stood within the official target for the first time in four years, raising concerns about the sustainability of the U.K. expansion.
A gauge of consumer prices advanced at an annual pace of 1.9% in January, slowing from comfortable 2% level a month earlier and falling short of analysts' expectations that projected no change. Core CPI surprised markets to the downside as well, falling to 1.6% from 1.7% earlier and missing expectations for a 1.9% increase. The main downside pressure came from household goods, alcohol, DVDs and museum entry fees. Immediately after the report the Sterling added to its earlier losses, with the cable falling to 1.6655.
Earlier, the Bank of England has projected inflation will remain around the official target of 2%, while price expectations are still well anchored. Coupled with the level of spare capacity within the domestic economy, Mark Carney pointed out monetary policy will remain accommodative for the foreseeable future to help economic recovery.
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