Halt in inflation does not mean base rate rise was wrong

Comment Martin Flanagan

Inflation holding steady last month at 3 per cent boosts hopes that price rises have peaked. That is some relief for consumers, most of whose earnings are seeing no growth to speak of and many of whom on variable mortgages will probably be a little worse off after the recent rise in base rates. It stops comfortably short of a cause for celebration because inflation is still running at its highest since April 2012.

But you have to pull out of a dive first before you can hope to prosper. And the latest data is consistent with much economic opinion since last summer that the tailend of 2017 would see the inflationary peak.

Inflation coming in as flat in October is unlikely to cause reflection in the Bank of England monetary policy committee that they were perhaps premature in pushing through the first interest rate rise in ten years a fortnight ago. Talk of red-faces at Threadneedle Street is simplistic.

Monetary tightening is as much art as science and there is nothing to suggest currently that the Bank got it wrong.

The rate rise was hardly dramatic, a mere quarter-point, and was justified given the extended run of inflation well above the Boe’s mid-term target of 2 per cent and contracting slack in the economy.

And it is not only savers who should be glad at the rise. We all benefit from rates being at slightly higher levels because it shows the UK economy and financial system is out of the intensive care ward.

It is too early to call, but static inflation last month might also suggest that the absolute worst of the jump in the cost of imported materials and goods since the Brexit vote-linked slump in sterling is over.