Stubborn inflation hits hopes of more QE

CPI falls less than expected, undermining prospects for a new burst of quantitative easing

Official inflation figures yesterday thwarted hopes of a rapid end to the squeeze on incomes and lowered expectations of the Bank of England's Monetary Policy Committee (MPC) extending its programme of quantitative easing (QE) next month.

The latest report from the Office for National Statistics (ONS) showed that consumer price index (CPI) year-on-year inflation fell to 3.4 per cent in February, down from 3.6 per cent in the preceding month. Financial analysts had expected a fall to 3.3 per cent. Retail price index inflation, which includes mortgage interest payments, dropped to 3.7 per cent from 3.9 per cent.

"If inflation fails to fall as quickly as the MPC would like to see, then the Bank of England may well opt to keep policy on hold at the next meeting" said George Buckley of Deutsche Bank.

The MPC justified the £50bn extension of its asset purchase scheme in February on the grounds that inflation would probably come in below the Bank's official 2 per cent target by the end of the year. Signs of stickiness in prices will strengthen the hand of hawks on the MPC.

The Bank's chief economist, Spencer Dale, who is also a member of the MPC, said in a speech in Cardiff yesterday that he personally suspects inflation will turn out higher than the consensus view of the MPC.

He said: "My own view is that the chance of inflation being above or below 2 per cent by the end of this year and into 2013 is somewhat more balanced".

Mr Dale cited the dangers that tensions in the Middle East could push up global energy prices and also disappointing UK productivity growth.

The ONS data showed that CPI was driven lower in February mainly by falls in energy bills and the fading impact of last year's increase in VAT. Discounting on digital cameras and air fares also pushed retail prices down. Inflation is now at its lowest rate since November 2010. But rises in alcohol prices prevented CPI falling lower. Spirits prices rose by 2.6 over the year.

A CBI survey of 436 manufacturers yesterday also pointed to inflationary pressures, with a considerable number saying they expect to raise their prices over the coming quarter.

Ian McCafferty, the CBI's chief economic adviser, attributed this to the recent rise in oil prices. However, more encouragingly, 39 per cent of respondents said they expected output to rise in the next three months, while 15 per cent said it would fall. The positive balance of 24 per cent is the strongest in a year.

The latest inflation figures mean the cost of living remains double the growth in average earnings, which rose by 1.4 per cent in the three months to January, according to the ONS. The Bank of England and the Treasury's fiscal watchdog, the Office for Budget Responsibility, have both based their forecasts for a pick up in growth later this year on expectations that the public's real incomes will rise as prices fall back.

The MPC voted to keep its QE programme on hold earlier this month. The minutes of the meeting, which will be released today, will show whether any members voted for an increase in asset purchases.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
News
Mock the tweet: Ukip leader Nigel Farage and comedian Frankie Boyle
peopleIt was a polite exchange of words, as you can imagine
Life and Style
fashion
Life and Style
Britons buy more than 30 million handsets each year, keeping them for an average of 18 months
tech
Arts and Entertainment
TV Presenters Ant McPartlin and Dec Donnelly. Winners of the 'Entertainment Programme' award for 'Ant and Dec's Saturday Night Takeaway'
musicAnt and Dec confirmed as hosts of next year's Brit Awards
Arts and Entertainment
Orson Welles made Citizen Kane at 25, and battled with Hollywood film studios thereafter
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"
Lyricist Richard Thomas shares his 11-step recipe for creating a hit West End musical

11-step recipe for creating a West End hit

Richard Thomas, the lyricist behind the Jerry Springer and Anna Nicole Smith operas, explains how Bob Dylan, 'Breaking Bad' and even Noam Chomsky inspired his songbook for the new musical 'Made in Dagenham'
Tonke Dragt's The Letter for the King has finally been translated into English ... 50 years on

Buried treasure: The Letter for the King

The coming-of-age tale about a boy and his mission to save a mythical kingdom has sold a million copies since it was written by an eccentric Dutchwoman in 1962. Yet until last year, no one had read it in English
Can instilling a sense of entrepreneurship in pupils have a positive effect on their learning?

The school that means business

Richard Garner heads to Lancashire, where developing the 'dragons' of the future is also helping one community academy to achieve its educational goals
10 best tablets

The world in your pocket: 10 best tablets

They’re thin, they’re light, you can use them for work on the move or keeping entertained
Lutz Pfannenstiel: The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents

Lutz Pfannenstiel interview

The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents
Pete Jenson: Popular Jürgen Klopp can reignite Borussia Dortmund’s season with visit to Bayern Munich

Pete Jenson's a Different League

Popular Klopp can reignite Dortmund’s season with visit to Bayern
John Cantlie video proves that Isis expects victory in Kobani

Cantlie video proves that Isis expects victory in Kobani

The use of the British hostage demonstrates once again the militants' skill and originality in conducting a propaganda war, says Patrick Cockburn
The killer instinct: The man who helps students spot potential murderers

The killer instinct

Phil Chalmers travels the US warning students how to spot possible future murderers, but can his contentious methods really stop the bloodshed?
Clothing the gap: A new exhibition celebrates women who stood apart from the fashion herd

Clothing the gap

A new exhibition celebrates women who stood apart from the fashion herd
Fall of the Berlin Wall: Goodbye to all that - the lost world beyond the Iron Curtain

The Fall of the Berlin Wall

Goodbye to all that - the lost world beyond the Iron Curtain