By Maximilian Clarke
Inflation, the Office for National Statistics this morning confirmed a 0.2% drop in inflation that exceeded most economists’ forecasts.
Reacting to the news, the British Chambers of Commerce predict inflation to continue its downward trajectory over the coming months. This will lessen the pressure on the Bank of England’s Monetary Policy Committee to curb inflation through an interest rate rise. Doing so prematurely would make credit for enterprises more scarce, stifling business at a crucial point in the UK’s recovery.
Commenting earlier, David Kern- the Chambers’ chief economist, said:
“These figures support our view that inflation is probably past its peak, and a sharp decline can be expected during the course of 2012. Falls in the cost of food, due to heavy discounting by supermarkets, have driven down inflation. This confirms that weak consumer demand is forcing some businesses to reduce their margins. Falling petrol prices also contributed to the decrease, and we expect weak global growth to reinforce downward pressures on energy and commodity prices over the next year.
“The inflation figures should reassure the MPC that it is correct to persevere with its expansionary monetary policy. The recent surge in inflation is likely to prove temporary, and the MPC must maintain low interest rates and an aggressive QE programme.
“These policies are not sufficient on their own and must be supplemented by measures to boost the flow of finance to businesses, particularly smaller firms. The Autumn Statement at the end of this month will provide the Chancellor with an opportunity to introduce credit-easing measures and moves to allow businesses to stimulate growth. He must also take action to limit business rate rises next year, which are currently pegged to September’s peak inflation figure.”
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