UK: Lack of inflation gives BoE scope to respond to Brexit risks - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    James Knightley, Senior Economist at ING, notes that the UK headline consumer price inflation rose to 0.3%YoY in January from the 0.2%YoY rate recorded in December.

    Key Quotes

    “This was widely expected and largely reflects food and energy prices having a slightly less dampening effect. Core inflation (ex food & energy) slowed to 1.2%YoY from 1.4% which mainly reflects recent volatility in airline fares (falling 17.1% this month a big jump last month). In the near-term headline inflation is likely to remain close to zero as the effects of recent utility bill price cuts feed through, but medium term pressures could start to creep higher due to sterling’s plunge pushing up the price of imports.

    Nonetheless, with tomorrow’s labour report set to show wage growth remains fairly subdued at around 2%YoY there isn’t enough inflationary pressures to worry the Bank of England. Indeed, with the upcoming Brexit vote uncertainty potentially risking a loss of economic momentum as firms pull back on imminent job hiring and investment, BoE policy will remain stable until after the referendum. Should the UK vote to stay we still see a decent chance of a November hike. Should the UK vote to leave we are likely to see at least one rate cut very soon after the vote.”
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