Inflation turns positive, but only just,andThe plus sign on inflation figure matters little. A glance at the chart shows inflation has been -0.1 percent, 0 percent or +0.1 percent since February – basically stuck at zero. Once again this places little pressure on the Bank of England to lift interest rates. 

Earlier this year the Bank forecast that inflation would pick up as the effect of the drop in oil prices fell out of the year-on-year calculations. This hasn’t transpired – oil and other commodity prices have fallen even further and continue to weigh on the inflation rate, while sterling’s strength has also exerted significant downward pressure. It now looks likely that inflation will remain low for some time yet, though it is expected to climb slowly in the coming months.

Core inflation, which strips out volatile components like food and energy, also remains weak at 1.2 percent, though this was also up slightly from last month. This offers little suggestion that underlying inflationary pressures are building in the UK economy. Furthermore there are signs that wage growth is flattening out – figures due out tomorrow are expected to show pay growth has slowed from 3.0 percent to 2.5 percent.

All this means the Bank of England is likely to wait longer before raising rates. Deputy governor Minouche Shafik said yesterday that she would need to see sustained wage growth sufficient to push inflation back up to target before voting for higher rates. I see base rate remaining at 0.5 percent into the second half of next year, and quite possibly even longer than that.”