Britain’s Central Bank Dilemma has eased due to the UK inflation drop, just ahead of BREXIT
Last updated on December 3rd, 2018
September figures suggest remarkable UK inflation drop which means less pressure is being put on the Bank of England to raise interest rates. This is a huge relief for a country that is facing incredible uncertainty, with Brexit looming around the corner. Consumer prices for September were almost 2.5 percent higher, down from just over 2.5 percent the previous month. This was due to lower prices for food and alcohol.
UK Inflation drop is still above the 2 % target of the Bank of England and has stayed this way pretty much since England voted yes for Brexit. And because of higher oil prices, economist are not expecting much change.
Nobody wants the policy changed until there is clarity over Brexit’s exit plan, least of all the Bank of England. There are a few interest rates that are ‘penciled in’ over the next many years, which is to bring inflation back to where it should be. Still, given the confusion of how Britain is going exit the EU in March of 2019, the Central Bank is not expected to make any dire announcements soon.
Next week Prime Minister These May will meet with the EU to find a way, some kind of compromise, on how Britain is going to exit the EU.
One thing is clear – Britain will be exiting the EU. That is how the people voted and that is what they are going to get. Economists are warning that the risk of seeing England leave the EU without a clear plan, and without agreement between Britain and the EU, could see the country in dire economic straits.
Once Britain leaves the EU, rate cuts will be needed to help the economy through a tumultuous time. This is not something anyone thought about when voting yes for Brexit. If the pound falls further, prices increases. While rate increases could then contain inflation at this point, nobody particularly wants rate increases.
Over the last year, the Bank of England has had to increase its interest rates twice, up to 0.75 %. Even though the economy has been slowing, inflation did rise a lot after the Brexit vote. The pound fell sharply and prices for imported goods increased. When borrowing rates are increased, they can lead to UK inflation drop in general. This can be done by increasing the value of the British currency, the pound, which can contain the pressures of import.
There is already confusion and some panic over Britain’s departures. If the British could vote again, this time in a more educated fashion, one wonders what the results would have been.
If you keep an eye on the British pound over the next few months, there are likely to witness UK inflation drop leading to drop in the value of the pound. Unpredictability is expected, not least because Brexit and how it is all going to work is unpredictable. While September figures eased fairly considerably, we do not know what future figures are going to be.
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