UK inflation slows – reaction

Following on from the announcement that UK inflation slowed more than expected in December, Andy Scott, Associate Director at JCRA, said: “Today’s inflation data has strengthened the case for UK interest rates to be cut at the Bank of England’s meeting this month, as weaker economic growth both domestic and foreign weighs on price pressures.

“With UK economic growth at its weakest pace since 2012, as businesses and consumers continued to scale back spending due to uncertainty over Brexit and in the lead up to December’s election, there is a growing consensus among the Bank’s MPC that monetary stimulus is necessary. Governor Carney signalled he was weighing up a rate cut in comments over the weekend.

“The Bank has been patient and waiting to see what happens with Brexit, but it has become clear that the economy is close to stalling as demand continues to fall and the risk of recession rises, creating more urgency for the Bank to act.

“While the certainty of the UK election result and the departure from the EU into a transition period at the end of this month has lifted business and consumer optimism, there’s no guarantee that it will translate into real spending and may prove temporary with trade talks set to begin next month. Against this backdrop, it seems to make sense to cut rates to stimulate demand with inflation slowing, even if the impact will be limited by the fact that borrowing costs are still close to record lows.”