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Aug 06 2015

As U.K. Inflation Slips Back to Zero, What Lies Ahead?

The Bank of England (BoE) downgraded its near-term forecasts for inflation this week. With just one member of the Monetary Policy Committee voting to raise rates, the consensus now expects the next rate hike to be later than previously thought. Indeed, year-over-year CPI inflation slipped to 0% in June, remaining well under the BoE's target of 2%. In addition, retail sales fell unexpectedly by 0.2% month-over-month in June, even with the recent urging from BoE governor Mark Carney to “enjoy [low inflation] while it lasts.” So, just how long will low inflation last?

ECRI’s latest update to the U.K. Future Inflation Gauge, the value of which lies in its ability to predict cyclical turns in U.K. inflation, helps answer this question. Our analysis provides insight into the future direction of inflation, with implications for the BoE policy decisions in the coming months.

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