UK inflation bolsters view cenbank will not cut rates

Financial system seen as resilient to Brexit, trade wars

LONDON, Dec 18, (AP): Inflation in Britain held steady at 1.5% in the year to November, official figures showed Wednesday, reinforcing expectations that the Bank of England will not cut its main interest rate on Thursday.

The Office for National Statistics said the largest downward push on the consumer price index came from accommodation services and tobacco, while the largest upward contributions came from food, and recreation and culture.

The unchanged reading was slightly higher than expectations for a modest decline to 1.4% and ahead of recent Bank of England predictions.

Though inflation remains markedly below target, the Bank of England’s Monetary Policy Committee is widely expected to hold off from cutting its main interest rate on Thursday from 0.75%. Most economists think inflation will start to creep upwards over coming months largely because the UK labor market remains tight with record levels of employment, and reduced near-term uncertainty from Brexit.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the central bank will likely remain focused on domestically-generated inflation, which he expects to “strengthen modestly, in response to the tight labour market and likely uptick in GDP growth in the first half of 2020.

“We continue to think, therefore, that investors are mistaken currently to be pricing-in a 50% chance that the (central bank) will cut Bank Rate in the first half of next year,” he said.

The outlook for the British economy remains murky. Though Britain’s departure from the European Union is

In this file photo, David Wright (left), and Dan During (right), pack bars of soap at the Clarity – The Soap Co premises in London. The UK election result means Britain’s departure from the European Union will almost

widely considered to be negative for the long-term health of the economy, the fact that Prime Minister Boris Johnson’s Conservatives won a majority in last week’s election has reduced some of the uncertainty. Brexit is now almost surely going to take place on Jan 31, and Britain will then enter a transition period through to the end of 2020 whereby it remains in the EU’s economic arrangements but without any voting rights.

Meanwhile, Britain’s financial sector can withstand large shocks and disruptions, whether from a disorderly Brexit or a deterioration in global trade wars, the Bank of England said Monday.

certainly happen – after multiple delays – on Jan 31, as scheduled. But for companies that have had to plan for all sorts of potentially chaotic outcomes to Brexit, even just a little clarity is a breath of fresh air. (AP)

In a set of reports and surveys, the central bank said it found that the country’s banks are strong enough to withstand a deep, global recession and market turmoil.

“The core of the UK financial system – including banks, dealers and insurance companies – is resilient to, and prepared for, the wide range of UK economic and financial shocks that could be associated with a worst-case disorderly Brexit,” said the authors of the bank’s Financial Stability Report.

But the ultimate nature of Britain’s relations with the European Union and major trading partners has yet to be agreed on, meaning there is still a risk of a disorderly exit.

Also, other major risks continue to linger, like the tariffs disputes that the United States has been waging against top trading partners.

In a biannual survey of investors’ views of risks, the Bank of England found that confidence in the stability of the financial system remains stable. But they found that politics – like the impasse over Brexit that has market Britain this year – was considered the top risk, along with cyberattacks and geopolitical events, like the trade war or conflicts around the world.

The surveys and reports were carried out before last Thursday’s election.