British inflation eases

Economists said after the referendum on Brexit that a temporary spike in the inflation rate could be expected due notably to the British currency depreciation.
That’s what has happened with a peak in November 2017 at 3.1%. After this date, the inflation rate is receding at less than 2.5% in March 2018. The core inflation rate has followed the same profile with a current rate at less than 2.3%.
uk inflation rate.png
The price index in the Markit survey for the UK is a good leading indicator of the inflation rate. The index leads the inflation rate by 6 months. If we follow the relationship between the two indicators that has worked  for the last 20 years then we can infer that the inflation rate will continue to recede.
uk-inflation-markit.png
What will happen on monetary policy side? As the inflation rate will converge to 2% during the year 2018 the best strategy for the BoE is to keep its current policy unchanged. It will also be positive for the economic activity.

1 thought on “British inflation eases

  1. Pingback: The rules of the game have changed for the emerging countries | Philippe Waechter's blog

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