UK Inflation Expectations Fall
An important statistic has just been released by the Bank of England (BoE) in the form of Consumer Inflation Expectations. Unlike the Consumer Price Index, which measures the actual change in prices of consumer goods, the Expectation figure is derived from where consumers anticipate prices are going over the next 12 months. This months reading of the Consumer Inflation Expectation figure is 2.6% compared to the 2.8% registered in May. The significance of this figure is that it affects consumer sentiment and also dictates whether consumers choose to save or spend.
The actual inflation rate in the UK is currently running at 1.80% as measured by the CPI, this has been rising steadily as the recovery takes hold and is now rapidly approaching the BoE’s inflation rate of 2%. Regardless of the increasing upward pressure on general prices the Bank passed up on the opportunity yesterday to tighten up on monetary policy, the key official base rate was once again left at the 0.5% level, somewhere it has been for over five years. When the run away growth in house prices is coupled with the rising consumer prices situation it becomes easy to forecast that a rise in the UK interest rates is on the cards sooner rather than later.
The prospect of a rate hike in light of a rapidly recovering British economy is keeping the price of the British Pound elevated. This is having an adverse effect on the UK’s trade figures. The Total Trade Balance number just reported for April is still running at a large deficit of -£1.843Bn, this is significantly larger than the previous months number of -£1.284Bn. The Goods Trade Balance is now at -£8.924Bn compared to the March reading of -£8.478Bn and market consensus of -£8.650Bn. The non-EU Trade Balance number for April is -£3.783 versus -£3.19Bn in March and an anticipated -£3.10Bn.
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