FXStreet (Delhi) – James Knightley, Senior Economist at ING, suggests that the UK inflation will move back into positive territory, but with oil well below $40/bbl CPI will be slow to return to target. Key Quotes “Headline UK inflation is likely to move back into positive territory in November and if anything, we see a little upside risk to the consensus view. Petrol prices did fall last month – the Automobile Association state that the national average fell 1.5p per litre (ppl) to 109.2 ppl while diesel fell 0.8 pence to 110.2ppl – but this is substantially less than the 4.3ppl decline in petrol and 3.9ppl drop in diesel (both in nominal and percentage terms) seen in November last year. We also feel that the discounting in the lead up to “Black Friday” sales was less aggressive than last year. Consequently, we look for the annual rate of headline CPI to come in at 0.2%YoY versus the 0.1%YoY prediction of consensus.” “Nonetheless, with Brent crude now trading at just $37.50/bbl, inflation is unlikely to rise rapidly anytime soon. Indeed, the competitive supermarket environment will keep food price growth constrained while unseasonably warm weather has meant we have seen some aggressive discounting on clothing (particularly coats, shoes and jumpers) ahead of Christmas. Moreover, The producer price inflation report indicates a lack of pipeline pressure, thanks in no small part to the weakness in commodity prices and sterling strength.” “We are also not seeing the sort of pick-up in wages that we had thought possible. As the Bank of England noted last week, while there may be some short-term volatility in wage data, “it could also be that lower headline readings of inflation have acted to limit recent nominal pay growth, despite the tightening labour market.” Given this general lack of inflation pressures we are likely to see the Bank of England continuing to emphasise that it is on no hurry to raise interest rates. So, with the Federal Reserve set to start hiking rates this Wednesday we see this growing disconnect in the outlook for monetary policy helping to nudge sterling lower versus the US dollar.” ------- What will 2016 bring to the Forex traders? Attend our Forex Forecast 2016 - The Panel with Ashraf Laidi, Valeria Bednarik, Boris Schlossberg, Adam Button, Ivan Delgado and Dale Pinkert. Register for the live event on Dec. 18th and get the recording too. ------- For more information, read our latest forex news.