Chris Williamson, expert from Markit, comments on the UK inflation
“UK inflation remained largely absent in November, and looks set to remain weaker for longer than forecasters have recently been expecting.
“Prices were 0.1% higher than a year ago, according to the Office for National Statistics, in line with expectations and pulling back into positive territory for the first time in four months. Core inflation meanwhile edged up to 1.2%, its highest since July.
“The outlook for inflation has become increasingly benign. An ongoing lack of pricing power is clearly evident in the business survey data despite the robust pace of economic growth being witnessed in the fourth quarter, with PMI surveys showing average prices charged for goods and services unchanged in November. Falling prices for oil and other commodities are helping drive down companies’ costs, which are falling at a rate that has rarely been exceeded in the 24-year history of the manufacturing PMI survey. Weak wage pressures and fierce competition in the retail sector are also helping keep a lid on prices. Hence clothing prices showing a record fall between October and November.
“With oil prices falling further to reach lows not seen since the depths of the financial crisis in recent sessions, and the ongoing global supply glut likely to keep prices low for some time to come, it seems that central banks will be revising down their inflation forecasts. In its latest Inflation Report, the Bank of England expected inflation to move above 1% in the second half of next year, but this may require wages to rise faster than anticipated in order to offset falling oil prices. This is clearly good news for consumers in two respects: low prices boost spending power and the dovish outlook for inflation takes pressure off the Bank of England from hiking interest rates any time soon.”
