Mark Carney set to write inflation letter next month

 
Tim Wallace
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Mark Carney is set to write his first letter to the chancellor for missing the inflation target
INFLATION is expected to have dropped too far below the Bank of England’s target, prompting an embarrassing letter from Mark Carney to George Osborne to explain what went wrong.

But instead of sending the letter the moment the inflation data is published – at 9.30am this morning – the governor of the Bank will now get to wait for more than a month.

The Bank is England is charged with keeping consumer price inflation at two per cent per year, give or take one percentage point.

Economists expect inflation to come in at below one per cent in the December numbers.

This will be the first time inflation has missed its target since the new system came into place in March 2014 – the last time inflation was outside the required level was January 2012, when prices rose by 3.6 per cent.

But instead of writing a letter today, Carney will wait to meet the other members of the Monetary Policy Committee (MPC) first.

The meeting takes place on Thursday 5 February, and the letter will be published alongside the meeting’s minutes on Wednesday 18 February.

But the City will be rewarded for the wait by a more detailed explanation of what to expect.

The governor will be expected to explain in more detail when he expects inflation to return to target and how – or if – the MPC will respond to low inflation.

Likely explanations include the sharp fall in oil prices. When oil prices rose strongly, pushing up inflation, the MPC refused to change its tack on stimulating the economy, arguing that it would “look through” the impact of commodity price changes.

Similarly economists expect a similar reaction this time – the Bank is unlikely to slash interest rates or print more money in reaction to low inflation now.

“We expect inflation to trough at 0.3 per cent and to register 0.5 per cent in December data,” said Berenberg Bank economist Rob Wood.

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