17 Feb 2015
UK CPI hits new lows, supports the case for a rate hike by BOE – Danske
FXStreet (Barcelona) - Mikael Olai Milhøj, Analyst at Danske Bank, reviews the UK CPI release, noting that the lowest reading ever in the history of the country supports the case hike for this year, further adding that the inflation print adds downside risks to their August 2015 rate hike forecast.
Key Quotes
“In line with our expectations, UK CPI inflation declined by 0.2 percentage points to 0.3% in January 2015 from 0.5% in December 2014 (Danske Bank: 0.3%, consensus: 0.4%). This is the lowest reading since the data series began in 1989. Based on an Office of National Statistics (ONS) model, inflation has not been this low since March 1960.”
“Core inflation increased slightly to 1.4% y/y in January 2015 from 1.3% y/y in December 2014.”
“Although core inflation remains subdued, it is still significantly above zero, implying that the deflationary tendencies in the British economy are limited.“
“In the Inflation Report published last week, Bank of England (BoE) lowered its shortterm inflation forecasts significantly, mainly due to the lower oil prices. The BoE now expects inflation to stay low in the short-term but to pick up in the medium-term.”
“Hence the Bank Rate could be raised despite the low inflation if the medium-term outlook calls for a tighter monetary policy. This supports the case for a rate hike this year.”
“We currently expect BoE to hike at its August 2015 meeting. However, the low inflation is a downside risk to this forecast as it gives the BoE the opportunity to be more patient.”
Key Quotes
“In line with our expectations, UK CPI inflation declined by 0.2 percentage points to 0.3% in January 2015 from 0.5% in December 2014 (Danske Bank: 0.3%, consensus: 0.4%). This is the lowest reading since the data series began in 1989. Based on an Office of National Statistics (ONS) model, inflation has not been this low since March 1960.”
“Core inflation increased slightly to 1.4% y/y in January 2015 from 1.3% y/y in December 2014.”
“Although core inflation remains subdued, it is still significantly above zero, implying that the deflationary tendencies in the British economy are limited.“
“In the Inflation Report published last week, Bank of England (BoE) lowered its shortterm inflation forecasts significantly, mainly due to the lower oil prices. The BoE now expects inflation to stay low in the short-term but to pick up in the medium-term.”
“Hence the Bank Rate could be raised despite the low inflation if the medium-term outlook calls for a tighter monetary policy. This supports the case for a rate hike this year.”
“We currently expect BoE to hike at its August 2015 meeting. However, the low inflation is a downside risk to this forecast as it gives the BoE the opportunity to be more patient.”