Macroeconomics: UK economy, IB Economics

Larry Elliott drills down into today's inflation figure, noting that although it's fallen to 2.3% - largely driven by falling energy prices - there are still two main pockets of concern.

Core inflation remains high - it's down from 4.2% to 3.9% - and service sector inflation has hardly budged - falling marginally from 6% to 5.9% - both of which might deter immediate interest rate cuts. 

This week's inflation figures are going to be interesting with many people anticipating a marked fall in inflation, to close to target. As a result, many are predicting that the Bank of England is going to lower interest rates at some point in the next few months, not least given the latest admission of the Deputy Governor of the Bank, Ben Broadbent. 

Grocery price inflation is slowing and this is likely to feed through into food prices and inflation figures in due course. 

Inflation is down again, to 3.2%, the lowest since September 2021. It's disinflation - a fall in the rate of inflation - although prices are still rising. That said, be warned, prices falling is not necessarily a good thing and you should be capable of explaining why.

Whether or not this translates into lower interest rates is more debatable - not least given the Federal Reserve's position on the issue.

The Guardian's take on today's fall in inflation. Yet again, it speculates about the impact of this on the future trajectory of interest rates. 

The Guardian's take on the annual reweighting of the consumer bundle; it's already been added to my amended handout on the subject. 

However, it might prompt reflection about how the consumer bundle is weighted and the implications for inflation in those economies where it isn't regularly altered. 

Excellent article in the Guardian with a Canadian academic, Louis-Philippe Rochon highlighting the arbitrary nature of the 2% inflation target. Remarkably, nearly 60 countries have adopted this as their inflation target, without there being a definitive position on why this is the case. 

Of course, no-one denies that a lower target might risk deflation, and that's most probably a bad thing, but why 2%, and not 3 or 4%? This is particularly interesting in the present environment because the 2% target appears to have become a de facto default target, and the failure to hit the 'target' necessarily shapes monetary policy debates.

Equally, given the trade-off between inflation and unemployment, is there a risk that the pursuit of the 2% target imposes higher than necessary costs in terms of unemployment too. 

Good news for inflation with the British Retail Consortium suggesting that shop prices are rising at their slowest rate for 18 months in January, falling from 4% to 2.9%. However, food prices are still up by 6%, however its report suggests that many of the benefits of lower inflation aren't being passed onto consumers. 

Inflation's down to 3.9% in the year to November, a larger than expected drop, with fuel prices leading the way. However, it's still nearly 2% above the inflation target.

And watch for the Prime Minister looking to take credit for this today; it's got next-to-nothing to do with anything that the government has done.

You've got to love Paul Johnson of the IFS: not only does he lead an influential think-tank but he's also pleasing direct in his analysis, as this BBC article shows. 

His answer to the question is unequivocally 'No' - not only was the pledge to halve inflation by the end of the year disingenuous, "given the fact that Bank was, in January, forecasting that inflation would easily halve", mainly for reasons beyond either the government or the Bank of England's control. That said, he also points out that freezing income tax personal allowances increased tax revenues and will have played some part in reining in spending. 

He even argues that the government shouldn't have made the pledge on the grounds that it's no longer responsible for hitting the inflation target and that in doing so, it was in danger of muddying the waters surrounding the issue, potentially compromising central bank independence. 

The pensions triple lock is back in the spotlight, with the news that the government are looking at trying to be a little bit more selective with how it's interpreted. Under conventional rules, given that earnings went up by 8.5% in the three months to July, this should feed through to state pensions. 

However, if you exclude the payment of one-off bonuses to NHS staff and civil servants, this figure falls to 7.9% saving the government around £1bn. I suspect I know what they'll do. 

This Bank of England clip gives the absolute basics about inflation - and when I mean basics, I really do mean basics. 

UK inflation has tumbled to 2.3% for April, down from 3.2% and fuelling calls for interest rate cuts. However, there are some cautionary noises coming from some who note that service sector inflation has scarcely shifted and this might make the Bank of England reluctant to cut rates in June. 

The latest inflation figures are going to be released this week and the consensus view is that significant falls in energy prices will contribute to a similarly significant fall in inflation. 

As ever, the government will no doubt take credit for this - but the picture for the rest of the year, and the prospect of interest rate cuts might mean that keeping inflation low will prove to be problematic. 

It looks like today's inflation data is going to mean that interest rate cuts are being put on hold for another month or two, depriving the Prime Minister of a pre-election boost from expansionary policy. 

Oh dear. What a pity. 

And Larry Elliott's follow-up piece - when will interest rates be cu, effectively rehashing an article he wrote all of three days ago. He wants them to fall sooner rather than later.

Inflation has fallen to its lowest level since September 2021, falling to 3.4% in February, largely as a result of falling food prices and falls in the cost of eating out. 

Whilst I doubt whether this will have any effect on this week's interest rate decision, it is also nice to see Jeremy Hunt's take on the possibility of future tax cuts invoking the Zhou En-Lai take on the French Revolution.

The annual revision of the consumer bundle used to calculate inflation has come around and this BBC article provides a handy primer as to what's in and what's out.

Air fryers and vinyl records in; hand sanitiser and sofa beds out - presumably in response to the end of the coronavirus pandemic in the case of the former.

The extent to which we live in a push-me, pull-me economy is laid bare by the latest interest rate decision. One MPC member voted for a rate cut, two for a rate rise and six to hold rates at 5.25%. And that's where they will stay. 

The Governor, Andrew Bailey outlined the reasons for the rate freeze: "We need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates". Thus, whilst later in the year it's highly likely that rates will come down, for the next short period they're likely to remain where they are. 

Surprise, surprise! After all the talk of inflation melting away to target within the next four months, today's inflation figures reveal that it's risen slightly to 4% in the last month, with tobacco and alcohol taxes helping boost it.

The push-me, pull-me economy rears its head again.

Phillip Inman analyses yesterday's fall in inflation and notes that whilst welcomed, there's still uncertainty about the future direction of interest rates, with many commentators thinking that rates are going to fall, although the Bank of England is insistent that they're not going to fall any time soon. 

With the Autumn Statement around the corner, a number of anti-poverty campaigners are urging the government not to try and fiddle with their uprating of working age benefits to take advantage of last month's rapid fall in inflation. 

It is thought that if the government increase benefits by October's 4.6% rather than September's 6.7% they will save themselves £2bn, but at the cost of the living standards of some of the most vulnerable. 

Will the Prime Minister succeed in hitting his target of halving inflation from 10.7% at the end of last year to 5.3% by the end of this year. It depends on who you listen to, however, it's going to be a close run thing. 

The largest contributor is that falling electricity and gas prices are going to see inflation fall, but how far it falls is still open to question. And the current uncertainty, and slight disappointment with this month's figure means that November's MPC interest rate decision is going to come under closer scrutiny than it would otherwise have done. 

As I've just 'scooped'; it seems that inflation is on the way down again in September, with analysts of the view that September's figure is likely to be 6.5%.