Mark Carney prepares to write Chancellor historic letter as inflation dips to 1%Comments Off on Mark Carney prepares to write Chancellor historic letter as inflation dips to 1%
The Bank expected CPI inflation to fall to 1% in December and the Governor warned last month that it was “more likely than not” he would have to write a letter over the coming six months to explain why inflation was more than one percentage point below Threadneedle Street’s official 2% target. Previous letters have dealt with inflation being above target.
Today’s CPI figure, which was well below the 1.2% expected by City analysts, and the continued decline in global oil prices this month, makes it still more probable inflation will now soon dip below the 1% mark, prompting a letter.
Economists also said the weak inflationary pressures could push back the timing of the Bank’s first interest rate rise, which markets are currently pricing in for next autumn. “It gives the BoE plenty of room to leave policy ultra-loose” said James Knightley of ING.
In a further sign of dissipating price pressures, the Office for National Statistics said factory gate prices dropped 0.1% year on year in November, the fifth consecutive month of deflation.