Inflation ‘will remain above target’, warns business group

14 Nov 2013

UK inflation fell from 2.7% to 2.2% in October, the latest  figures from the Office for National Statistics (ONS) have revealed. However,  inflation is likely to remain above the 2% target for some time to come,  according to the British Chambers of Commerce (BCC).

The fall in CPI inflation was largely driven by a drop in  transport prices, including fuel price cuts made by some of the UK’s leading  supermarket chains, together with a fall in some air fares.

CPI inflation has now reached its lowest level in over a  year, sparking speculation that the Bank of England may need to raise interest  rates.

Despite the recent downward trend, the BCC has warned that  it will be difficult to bring inflation below the 2% target, particularly  following recent announcements of price rises by many of the UK’s largest  energy firms.

David  Kern, Chief Economist at the BCC, said, ‘The larger than  expected fall in inflation will ease pressures on businesses and consumers,  particularly at a time when wages aren’t rising at the same rate. However while  we expect inflation to fall further over the next year, this will not be a  smooth process. Some of the October declines are likely to be reversed,  especially when energy price increases take effect’.

‘The UK has been more inflation-prone than other major  economies. While latest figures show US inflation at 1.2% and eurozone at 0.7%,  ours has been above the 2% target for more than four years. The MPC will see  this fall as a sign that there is no short-term need to tighten monetary  policy, even though the unemployment threshold is likely to be reached earlier  than expected. However, the committee must focus on ensuring price stability to  avoid threatening business confidence.’

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