Low Inflation Might Force BoE Governor to Write Explanation

Mark Carney finds out this week if he will be the first governor since Bank of England independence in 1997 to write an open letter to the chancellor explaining why inflation is so low.

An oil market slump, a supermarket price war and a freeze on household utility bills is widely expected to have brought December inflation down below 1% for the first time since June 2002.

Under the Bank’s remit, if inflation strays more than one percentage point in either direction from the 2.0% target the governor must write to the chancellor explaining why inflation is off target and what the central bank intends to do about it. All of the 14 letters written until now have been after inflation missed the target too far in the other direction, overshooting by more than 1 percentage point.

Inflation on the consumer price index (CPI) measure fell to a 12-year low of 1% in November. Official figures on Tuesday are expected to show it dropped further in December.

Economists are forecasting inflation of just 0.7%, according to the consensus in a Reuters poll. The drop will not come as any surprise to the Bank’s monetary policy committee (MPC) which said in its November inflation report that inflation was likely to fall below 1% in early 2015.

“The lower oil price is amongst the factors that are set to push CPI inflation as low as 0.7% year-on-year this month,” said Sam Hill, senior UK economist, RBC Capital Markets.

via The Guardian

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