The latest inflation data from the UK has come in above forecast with the UK CPI Y/Y rising to 3.1%. This is the highest reading in more than 5 years and puts more pressure on the Bank of England to adopt a more hawkish stance later this week. The data will not be welcomed by BoE Governor Carney who will now be required to write a letter to the Treasury explaining why the bank has allowed inflation to exceed its 2% threshold by more than 1%.
After hiking rates for the first time in a decade at their previous meeting, it is obvious that the BoE are concerned with the persistent above target inflation, which is outstripping wage growth and meaning that workers are facing pay cuts in real terms. Despite today’s data it remains highly unlikely we will see another rate hike later this week, but there could well be more posturing towards one from rate-setters, as we saw back in September. With the next rate hike not expected until this time next year it is becoming increasingly hard for the BoE to justify their current monetary policy stance with inflation so far above target.