UK Inflation Expectations

image provided by indianagrain.com
image provided by indianagrain.com

Reuters Article

Official data also showed that growth in house prices eased in March, potentially tempering concerns about a bubble brewing in the property market although some more up-to-date surveys have shown prices picking up again.

Sterling hit a 16-month high against the euro and rose against the dollar before giving up much of its gains as market expectations that the Bank of England will raise interest rates in about a year’s time remained largely intact.

Core CPI, which excludes food costs and other items but does include transport costs, rose 2.0 percent, its strongest rate since September last year.

House prices – which are an increasing source of concern for the Bank of England – were up 8.0 percent on the year in March, slowing from a 9.2 percent rise in February, the ONS also said.

Average weekly earnings rose 1.7 percent in the three months to March, according to the most recent data available, slightly below the rate of inflation in April.

“It still looks highly probable that earnings growth will increasingly move above inflation over the coming months thereby lifting consumers’ purchasing power,” said Howard Archer, an economist at IHS Global, a consultancy.

My opinion: Inflation seems to be the “coming attraction” as the world begins to exit out of the 2008 Recession. The UK’s inflation though appears to be more of an issue than the US’s at this time. Where, housing pricing prices are on a 8% growth as compared to a -.1% growth in the States. CPI numbers

I think it is due to the fast pace of inflation that the BoE told their public that it will raise interest rates in the upcoming year. A little forward guidance to let the markets adjust gradually.

As noted by the article, wage growth in England is expanding quite well. With a 1.7% increase over the last 3 months, England is showing much stronger wage growth than the US — which was at .3% from Jan-Mar 2014.

All in all, I would say that since the numbers in England as compared to the US are much larger, the BoE may have a difficult time controlling its economy if things start moving the wrong way. The US economy, albeit slower, is pacing better. Small, measured steps seem to be the Fed’s plan of action and I believe the US economy will be stronger in the long-run because of it.

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