Economists have pushed back their hopes for the first rise in the U.K. base rate as inflation appears set to plummet below 1 %.
According to the most recent Bank of England (BoE) quarterly inflation report last week, it was more likely that the rate of U.K. inflation would fall below 1 % at a certain point in the next succeeding months which is dragging down food and oil prices.
The report was interpreted as exceptionally dovish which implies that there exist a high level of monetary easing that will persist to continue for quite some time marking a substantial change in sentiment from the August inflation report.
The recent report has alerted the senior economist at Axa Investment Managers, David Page to finely tune his speculated forecast for the first U.K. rate rise. He had prior predicted the BoE’s Monetary Policy Committee (MPC) would raise by May of next year.
The MPC will be not be sufficient to determine the manner on how to tighten policy during the uncertainty that appears likely to surround next May’s election.
The end of the near-term inflation weakness is anticipated to be within sight and the medium-term inflation pressures which included a weaker productivity growth will see inflation to be projected above a two per cent value.
The rate inflation has been taken as a strong indication or overall economic activity. Should it deep below 1 %, less than half of the BoE’s long running 2 % target, it would be indicative that the U.K. recovery was not that strong enough to handle the lessening monetary policy through a rate rise. Moreover, interest rates in the U.K. are anticipated to be on hold until October of next year.
The weaker global growth outlook and sharp falls in the global inflationary pressures have pushed the expected date of the first rate rise in the span of 12 months.
Given how fast the economic data had changed interest rate expectations, investors must be cautious in their preparations for a rate rise because such move could happen a lot sooner if certain economic indicators pick up.
European economists predict that the tone expressed on global economic growth along with inflation meant that interest rates could remain fairly unfazed until the end of 2015. Nevertheless, some commentators implicated that the weak inflation caused by the drop in the price of oil should only be temporary.