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Britain Inflation and housing: joined at the hip


Britain’s recent economic past is closely tied with the fortunes of the housing market. It does not look like that will change any time soon.
Uk inflation house prices and BOE
– Graphic by Vincent Flasseur


The latest official figures show a familiar pattern: low rates have a much bigger impact on house prices than they do on inflation, which turned negative again in September, never seen before this year since March 1960. London house prices tend to overshoot but the national figures tell a similar tale. Very little has changed recently, especially the interest rate.


Reuters Ross Finley, Global Editor



Sale signs, Bath

David Kern, chief economist at the British Chambers of Commerce, said they expected inflation to remain at or below 0% for most of this year.

"Our forecast is that annual CPI inflation will start to creep upwards early in 2016, but will remain below the 2% target well into 2017," he added.

"The benign outlook for inflation is also reinforced by our quarterly economic survey, which shows that the proportion of manufacturers expecting to raise prices has fallen to a five-year-low."




BCC: Slight deflation should delay any interest rate rise

BCC David Kern comments on the inflation figures for September 2015

The Consumer Price Index fell by 0.1% in the year to September 2015, compared to no change (0.0%) in the year to August 2015
A smaller than usual rise in clothing prices and falling motor fuel prices were the main contributors to the fall in the index
Goods inflation in September was -2.4%, while inflation in services was 2.5% 

Commenting on the inflation figures for September 2015, published today by the ONS, David Kern, BCC Chief Economist, said: 

"Inflation has remained at or around 0.0% for most of this year, and we expect that this will continue over the next few months. Our forecast is that annual CPI inflation will start to creep upwards early in 2016, but will remain below the 2% target well into 2017. The benign outlook for inflation is also reinforced by our Quarterly Economic Survey, which shows that the proportion of manufacturers expecting to raise prices has fallen to a five-year-low. 

“Low inflation boosts disposable income and supports living standards, thus helping the economic recovery. However recent trade and manufacturing figures have been disappointing, and ongoing global uncertainties, especially in the emerging markets, reinforce our view that the recovery is fragile, and no risks should be taken. With inflation unlikely to rise in the short term, the MPC should keep rates at the current low level until well into 2016.” 




A view from BCC Chief Economist David Kern - 3rd Quarter 2015

The Q3 2015 results point to moderate growth in the UK economy over the next year, driven mostly by services and by domestic demand. But the results are disappointing overall. Most key balances are weaker in Q3 than in Q2, in both manufacturing and services. It is particularly concerning that the exports and confidence balances have weakened in both main sectors.

The results suggest that the pace of GDP growth has decelerated slightly in Q3 2015. The manufacturing sector is facing major obstacles, while the service sector is more resilient overall. The Q3 falls in the manufacturing balances are in general larger than the declines in the service balances. In absolute terms, the manufacturing balances are weaker overall than the service balances. The exceptionally feeble manufacturing export balances are a stark reminder that rebalancing the economy and promoting exports in services must be national priorities.

While we must not forget the strengths of the UK economy, with higher growth than in most G-7 economies and with a dynamic and flexible labour market, the recovery is still fragile. Given the uncertain global situation, it is important to avoid unnecessary risks. The MPC should keep interest rates at their current low levels until well into 2016.


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