Dip in UK inflation to 3.6% lifts hopes for December rate cut – business live | Business

Today’s 3.6% CPI inflation reading was shallower than some economists had expected, but even those analysts say this is unlikely to stand in the way of another Bank of England rate cut.

But BoE governor Andrew Bailey continues to be the hinge vote.

James Smith, developed markets economist covering the UK at ING, says UK inflation “is undoubtedly past the peak” and is likely to follow the eurozone in seeing food price levels ease off:

Fortunately, evidence from the eurozone – where fresh food inflation is falling – coupled with a levelling off in the newly-reinstated producer price data for food products, suggests inflation at the supermarkets is probably more or less at its peak.

Services inflation also eased from 4.7% to 4.5%, with the drop principally down to air fares, and restaurant and cafe prices – often seen as a bellwether for “persistence” among services categories – increased sharply on the month.

However that is potentially linked to the broader food price pressure, Smith explained.

Smith adds:

That said, taking a broader view, services is still generally heading in the right direction once you ignore the month-to-month volatility.

Remember too that wage growth in the private sector is easing rapidly.

We doubt there’s anything that will shake the conviction of the Bank’s doves, who argue immediate easing is necessary to offset potential weakness emanating from the jobs market.

This leaves Bailey the deciding factor in December’s rate decision:

The bottom line here is that there’s unlikely to be anything in this data that will change the minds of many voters on the BoE committee.

That means the decision continues to hinge on governor Andrew Bailey, who is somewhere between the two camps – though given he is more sympathetic to the view of the doves, we think he will still tip the balance in favour of a cut in December.