The British economy remains basking in the glow of super-low inflation. Rock bottom interest rates – described by the Bank of England’s Kristin Forbes this week as like dangerously strong sunshine – will stay put well into next year.
The worry brigade will tell you otherwise. They will point to the inflation figures as evidence that prices are starting to rise and that interest rates will follow suit. Let’s get real here. Although inflation rose, zero per cent to 0.1 per cent is hardly Weimar Germany. OK, so core inflation, which strips out the more volatile items, rose to 1.2 per cent; but that’s still absurdly low, and way off the Bank’s 2 per cent target.
Meanwhile, oil prices, which feed into practically every item in your shopping basket, continue to fall, and supermarkets are gearing up for another price war, suggesting further declines in inflation.
And that’s before you factor in what’s going on in the currency markets. The strong pound, coupled with the newly weakened Chinese yuan, is making all our imported goods cheaper. These are trends that don’t seem likely to be reversed in the near future. Sunbathers, remain on your deckchairs. At this rate, the Bank won’t burn you until next spring at the earliest.
