October 19, 2005
Inflation rises, but interest rates could fall
This is what I read in my inbox this evening:
< <<< Inflation rises, but interest rates could fall Inflation rose to its highest level since Labour came to power last month, but analysts are predicting interest rates could soon be coming down. The Bank of England raises and lowers the underlying cost of borrowing in the UK in an attempt to keep inflation in check - but for the last three months the CPI measure of inflation has been above the Bank's two per cent target.
However, despite inflation rising to its highest level for almost nine years in September (2.5 per cent), many analysts are predicting interest rates could fall as soon as next month.
This is because, for the third month in a row, the thing that most pushed up CPI inflation was transport – with petrol prices continuing to rise on the back of crude oil prices and the after-effects of Hurricane Katrina.
But the Bank of England’s interest rate setting Monetary Policy Committee (MPC) has gone on record as saying it will not react to changes in a single commodity, and that it expects the price of oil to fall soon. And when the effect of oil was taken out of the equation, inflation remained under the Bank of England’s target.
‘The increase in the headline [CPI] rate from 2.4 per cent [in August] to 2.5 per cent was due to the impact of energy prices. Excluding energy, inflation fell for the second month in a row, from 1.8 per cent to 1.7 per cent,’ said Graeme Leach, chief economist at the Institute of Directors.
‘All eyes now turn to this week’s retail sales figures. If these are weak, the odds of a quarter point interest rate reduction in November will significantly increase, despite above target inflation at present,’ he added. >>>>
So do you think in November 2005 we’ll see a interest rate cut? Feel free to comment.
James Clark