UK: Inflation edged little higher in February – ING

James Smith, developed markets economist at ING, notes that the UK inflation edged a little higher in February, lifted by a rise in food prices and a modest pick-up in recreation costs and ING expects higher electricity/gas costs to take headline CPI from the latest 1.9% figure to roughly 2.2% next month.

Key Quotes

“Energy aside though, we expect 2019 to be a fairly benign year for inflation and importantly from the Bank of England’s perspective, we expect core CPI to hover around (or just below) the 2% target for much of the year.”

“But what really matters for policymakers is what happens to inflation beyond 2019. At 3.4%, wage growth is hovering at a post-crisis high, driven by skill shortages in various parts of the economy. Given that this has been at the heart of the BoE’s rate hike rationale in the past, it suggests a rate hike later in 2019 is still a possibility.”

“Of course, this depends almost solely on Brexit, and amid all the current uncertainty, it’s clear that the Bank will remain firmly on the sidelines as it prepares to announce its latest decision tomorrow.”