UK Inflation Unchanged: Will Bank of England Keep Hawkish Tone?
UK inflation in June
According to a report by the Office for National Statistics, on a monthly basis, the United Kingdom’s inflation remained unchanged in June 2017. The inflation index stood at 0.30% in May 2017. It didn’t meet the market expectation of a 0.20% rise.
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On a yearly basis, inflation in the United Kingdom was 2.6% in June 2017 compared to 2.9% in May 2017. It didn’t meet the market expectation of a 2.9% rise. Weaker improvements in energy prices and food prices are mainly responsible for weaker inflation. The annual core inflation, which is an important indicator for the BoE’s (Bank of England) policy decisions and excludes the performances of energy, tobacco, and food, stood at 2.4% in June 2017. It didn’t meet the market expectation of a 2.6% rise.
How will it impact the central bank’s decision?
In its June 2017 meeting, the BoE hinted that it might be hawkish in the near future despite the low-growth environment. Its three policymakers supported a rate hike since inflation is picking up. However, inflation is falling again. In this scenario, it will be difficult for the central bank to become hawkish in the near future.
In its August 2016 meeting, the Bank of England cut the key interest rate by 25 basis points for the first time in seven years. The central bank’s August rate cut indicates that it wants to protect the economy before it faces any major crisis from Britain’s (EWU) exit from the European Union (VGK) (EZU). However, nearly a year to the Brexit, the economic growth environment is still under pressure. The central bank’s decision will be crucial in this circumstance.
In the next part of this series, we’ll see which indicators we should look at this week.