Despite being slightly shy of expectations, it wasn’t entirely surprising and is pretty much in line with expectations that inflation will remain around these levels for the rest of this year. In their latest rate decision, the BoE’s Monetary Policy Committee (MPC) voted to maintain the Bank rate at 0.5 percent. Core inflation was unchanged at 1.0% y/y in September (Danske Bank: 1.1% y/y, consensus: 1.1% y/y).
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The FTSE ended the trading session lower during the trading session today on the back of the weak economic report as many traders believe that the economy continues to remain fragile.
Mr Vlieghe, 44, had to give up a long-term incentive plan with Brevan Howard for fear of being seen to have a conflict of interest in his new role deciding the path of interest rates. The rate of increase in total pay across the economy as a whole has strengthened to 3 per cent and in the private sector it is running at around 3.5 per cent. In construction and retail/hotels/restaurants, pay growth is running at around 5 per cent. The unemployment rate continues to fall.
LONDON-Consumer prices in the United Kingdom fell in September to mark the second drop this year, but central bank officials say the economy is unlikely to suffer the ill effects of widespread deflation. The weak inflation data, along with other disappointing releases recently such as yesterday’s trade figure, makes more monetary easing and fiscal stimulus very likely if China is to achieve something close to the 7% growth it targeted at the beginning of the year. We’ll also get the third quarter GDP reading on Monday which is expected to slip below 7% for the first time since the first quarter of 2009. Sterling was little changed at 74.22 pence per euro.
“This is particularly important in Northern Ireland where average wages are lower, energy prices are higher and the recovery is lagging the rest of the United Kingdom regions”.
The Bank of England is watching closely for signs of a further pickup in pay as it considers when to start raising interest rates for the first time since the financial crisis.
“Nevertheless, an interest rate hike from 0.50 per cent to 0.75 per cent sometime in the first half of 2016 still looks more likely than not to us”.
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“It alleviates a bit of pressure off the MPC, particularly because the Fed has good reasons to delay rate rises”, said Vicky Redwood, an analyst at Capital Economics.
