The battle over marmite is over, the battle for the pound in our pockets is set to begin. With the release of its latest Inflation Report, the Bank of England told us what it thinks today. It appears that the bank sits on the cautious side of the economic debate. But is it too cautious?
“Largely as a result of the depreciation of sterling, CPI inflation is expected to be higher throughout the three-year forecast period than in the Committee’s August projections,” stated the latest Inflation Report from the Bank of England. It continued: “In the central projection, inflation rises from its current level of 1% to around 2.75% per cent in 2018, before falling back gradually over 2019 to reach 2.5% in three years’ time.”
But might inflation rise higher than that?
There are reasons to expect inflation to rise. Only this week, the purchasing managers index tracking manufacturing saw its gauge of output prices rise to its highest level since June 2011, while it pointed to input prices increasing at their fastest rate in 69 months.
And today (November 3rd), the latest purchasing managers index for services, also pointed to the highest rate of input price inflation since 2011.
Earlier this week, the National Institute of Economics and Social Research predicted that, thanks to the recent fall in the pound since the Brexit vote, inflation may hit 4%, next year.
As for growth, the Inflation Report stated: “Output growth is expected to be stronger in the near term but weaker than previously anticipated in the latter part of the forecast period.”
Explaining its downward revision in its projections for growth it said “In part that reflects the impact of lower real income growth on household spending. It also reflects uncertainty over future trading arrangements, and the risk that UK-based firms’ access to EU markets could be materially reduced, which could restrain business activity and supply growth over a protracted period.”
It forecast a mild rise in the unemployment rate to around 5.5% by the middle of 2018 and to stay at around that level throughout 2019. Currently, UK unemployment is at 4.9%.