Pressure on Bank to cut interest rates
THE Bank of England is under pressure to cut interest rates at the end of the month after inflation fell to its lowest level in over three years.
The 1.3 per cent annual rise in consumer prices in December was down from 1.5 per cent the previous month and the weakest since November 2016, according to the Office for National Statistics.
Economists had expected another 1.5 per cent increase.
The ONS blamed a fall in the price of hotel stays and women’s cloth later ing as retailers stepped up discounting. Weakness in the economy prompted two of the nine members of the Bank of England’s Monetary Policy Committee to vote last month for an interest rate cut from 0.75 per cent.
One of them, Michael Saunders, warned yesterday there is a risk the economy will be weaker for two years than colleagues have predicted. He said: “If we defer easing near-term and, in the event of persistent weakness, face the need for greater easing on, then risks of a low inflation trap – which would certainly not be a benign outcome – would rise.”
Saunders said it was too early to say if last month’s election had given the economy a boost but any improvement was likely to be small.
Ayush Ansal, chief investment officer at Crimson Black Capital, said: “Coming after a triple whammy of weak retail sales and slowdowns in both the manufacturing and service sectors, this surprise fall in inflation will arguably put the doves in the driving seat at the Bank.
“When the MPC meets [on January 30], the possibility of an interest rate cut will now be firmly on the table.”