Home > Bank of England, Monetary Policy > UK Disinflation: Mission Accomplished?

UK Disinflation: Mission Accomplished?

The UK CPI rate is crashing downwards much faster than the Bank expected.

The annual CPI rate of 2.4% for June hides the fact that the CPI level has now been falling for two successive months.  Over the last six months the CPI has risen only 0.5% (not annualized).  The energy supply price shock which showed up in Autumn 2011 is still keeping the current annual rate high.

All this will doubtless be reported as a “welcome break for Britain’s savers”, that “downward pressure on real incomes is easing” and so on.  The last time we saw the six month CPI rate this low was May 2009.  Savers and workers were having such a fantastic time back then, weren’t they?

Anyway, it’s just another month’s data.  Back in sunny May, the Bank put a 10% probability on the CPI rate being below 2% in 2012 Q3.  That doesn’t look so improbable right now.  Here is the chart of the Bank’s median forecast for the CPI rate from the May Inflation Report, when the disinflation cycle began, against the current CPI rate up to June:

MPC UK Median CPI Forecast, May 2012

MPC UK Median CPI Forecast, May 2012


  1. July 17, 2012 at 20:46

    Seems Adam Posen had a better prediction than everybody elase, including the “humorless Brit” (Cantillon Blog):

    • July 17, 2012 at 22:00

      Posen will be missed. The BoE is a mess.

  1. July 25, 2012 at 19:11

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: