January interest rate cut on the cards
An interest rate cut could be on the cards in January after official data revealed inflation remained stable in November.
Despite the rising cost of petrol and oil, the Consumer Price Index – the government’s chosen measure of inflation – remained at 2.1% in November unchanged from October.
The Office of National Statistics says fewer increases in gas and electricity bills in comparison to a year ago is one factor keeping inflation stable. And falling air fares, vehicle maintenance and recreation activities such as the cost of eating out also played a part in ensuring inflation didn’t rise in November as predicted by some economists.
The Retail Price Index, which includes mortgage repayments, rose to 4.3% in November, up from 4.2% in October.
Vicky Redwood, an economist at Capital Economics, says there is a good chance of an interest rate cut in January or February next year.
She adds: “The Bank of England will be aware that future rises in gas and utilities bills could push inflation up, but these figures will help it make a cut early next year.”
And Angus Campbell, head of sales at Capital Spreads, says: “With high oil and commodity prices it looks unlikely that inflation will decline anytime soon, but the Bank of England is gambling on both global growth and UK GDP slowing to such an extent that inflation will naturally fall as a result.
“In 2008 the decisions taken by the Bank of England are likely to be fiercely debated and dependent on incoming data. With many economic growth forecasts being lowered for 2008, although a recession is unlikely, the Bank of England will have to act fast and cut rates should there be any indication of negative growth."
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).