All Reports

Sep 28 2016

Rising Inflation Can Complicate the BoE's Policy Options

To combat recession fears following the Brexit vote, the Bank of England (BoE) quickly lowered its benchmark interest rate to a record low of 0.25%. In a sign of how afraid they were, they also unveiled a new stimulus package to help boost growth.

But even before the vote, ECRI held a contrarian view, namely, that “even though Brexit could be a negative shock to the economy, it is unlikely to tip it into recession at this time.” In belated recognition of that accurate analysis, the Monetary Policy Committee has now revised its assessment of the Brexit vote’s impact, stating that “[t]he Committee now expect less of a slowing in [U.K.] GDP growth.” Thus, while the possibility of an additional rate cut this year is still on the table, it appears less likely.

Turning to inflation, please consider the year-over-year (yoy) CPI growth rate, presented in the chart, for additional insights. Following the downturn in the UKFIG, which consistently anticipates cyclical turns in CPI growth, CPI growth entered a cyclical downturn in June 2013, and dipped into negative territory in April 2015. However, CPI growth turned up last October, and was unchanged in August from July’s 20-month high.

The latest update to the UKFIG provides insight into the future trajectory of inflation, with implications for BoE policy decisions as it tries to balance the risk of rising inflation with that of slowing growth.

Related News & Events

Interview on Fed Models, and an Esoteric Long Leading Index

Bloomberg September 19, 2016

More detail on ECRI's growth rate cycles, and the global outlook. More


Cyclical Update

Bloomberg September 16, 2016

Growth, inflation and policy challenges. More


Cyclical Long-Term Slowdown In U.S. Growth But No Recession

Seeking Alpha September 12, 2016

Recall that in early 2016, when many were afraid of recession, ECRI declared that such fears were premature. More


The Brecession Blunder

ECRI September 7, 2016

Only now, with evidence mounting that such a recession hasn't materialized, is there puzzlement about the "Brecession blunder". More


Related Reports