Bullseye: UK inflation hits the mark

This is the first time inflation has hit its 2% target in four years. Exciting times for Bank of England governor Mark Carney...

by Emma Haslett
Last Updated: 14 Jan 2014

Bring out the bunting! Unite in a jubilant chorus of blowy curly party horns! Declare a national holiday! For the UK’s Consumer Prices Index dropped to its target rate of 2% in December, the first time it’s happened since November 2009. This is the most exciting inflation has got since the Office for National Statistics added 'craft kits' to its basket of goods

Alright, so MT may be getting ahead of itself: the figure has, after all, dropped by just 0.1% since the month before. Apparently, the fall was to do with a smaller-than-usual increase in the price of food and non-alcoholic drinks, which the ONS said was the lowest it’s been since 2006. Presumably something to do with the ever-escalating price war between supermarkets…

For the Bank of England, it’s great news: not only has new(ish) governor Mark Carney managed to do what his predecessor couldn’t, but it also means less pressure to increase interest rates – something Carney is keen to avoid before recovery is well and truly under way.

And consumers will be happy, too: not only is the cost of their weekly shop no longer spiraling out of control – but for the first time in what feels like eons, their annual pay rise is higher than inflation: ONS figures published last month showed average earnings in the year to April 2013 rose by 2.1%. Result.

What’s more, analysts are expecting inflation to stay around the 2% mark for ‘some time to come’. Which means Carney avoids awkward letters to the chancellor.

All eyes, then, will be on unemployment, which in theory needs to fall below 7% before the Bank of England will consider raising interest rates. Although the UK’s recovery is looking more and more solid by the day – so there may yet be pressure on Carney to give up on the forward guidance and start helping out savers, who, over the past few years, have felt a little forgotten.

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