CPI inflation falls, interest could follow
Tuesday, 14 February 2006 12:00
Consumer Price Inflation (CPI) fell in January, leading some economists to predict that interest rates could soon be cut.
The Bank of England sets the underlying cost of borrowing in the UK in an attempt to keep CPI inflation as close to 2.0 per cent as possible.
Today the Office of National Statistics revealed that inflation in January fell to 1.9 per cent, below the government's target and the Bank of England's prediction.
Fuel prices - especially for ultra-low sulphur petrol and diesel - air fares, and the cost of fixed landline telephone charges have all increased in price since last year. But furniture, furnishings, and financial services fell in price compared with 12 months ago.
Additionally games, toys and hobbies, vegetables, and women's and children's clothes sales also fell in price. Men's clothes, by contrast, were marginally more expensive.
"With consumer price inflation below the 2.0 per cent target level in both December and January and clearly below the levels forecast by the Bank of England in their November quarterly inflation report, a near-term interest rate cut suddenly looks a very real possibility again," said Howard Archer, chief UK economist at the Global Insight consultancy.
Mr Archer mooted May as a possible time for interest rates to fall.
But Jonathan Said, economist at the cebr think tank, disagreed.
He said: "Today's news may influence the markets, weakening the pound and equities and supporting bonds. However, we do not believe the inflation figure raises the probability of lower interest rates any time soon, because of lingering input price concerns."
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