Bank of England Governor, Mark Carney, will have breathed a sigh of relief on Tuesday, after official figures showed Consumer Price Inflation (CPI) held steady at 3 per cent in October.
Yes, that’s still a five-year high but we’ve been in worse positions before during the past decade.
The fact CPI didn’t rise as expected - to as much as 3.2 per cent, according to some estimates in October - not only spared Mr Carney’s blushes in that he didn’t have to write to the Chancellor to explain why; it also suggested the Bank’s original hypothesis that most of the inflation was imported was correct.
So now what? Well, frankly nothing. The Bank will come under little pressure to raise interest rates further having already done so for the first time in ten years earlier this month and against the advice of some economists.
And if, as many believe it will, CPI begins to fall over the next twelve months then the Bank can revisit its interest rate strategy and potentially make even fewer rate rises than most expect it to over the two to three-year time horizon it is working to.
Of course, that might all change next month if CPI creeps up and there is a chance we haven’t seen the peak of inflation. But most economists believe CPI will trend down in 2018 as the after-effects of the fall in the value of Sterling since the European Union referendum are finally absorbed by the economy.
So, it’s unlikely we’ll see much action from the Bank of England until mid-2018 at the earliest, at least as long as CPI stays reasonably stable and calm.
But as always there is the small matter of Brexit in the background. How Brexit negotiations proceed and the continuing uncertainty they cause will have a material impact on Britain’s economic growth in 2018. And despite deputy Bank governor Ben Broadbent's claims Brexit won't prevent rate rises few within the markets are likely to believe him.
How much more uncertainty the economy can handle is anyone’s guess but those of a more pessimistic persuasion would probably say, not much. And the danger of companies starting to initiate contingency plans from March if negotiations turn sour should not be under-estimated.
Of course, those of a more left-field school of thought suggest the Bank didn’t raise interest rates two weeks ago because it was concerned about inflation.
Instead, it raised rates because it is worried about a recession and a flight of businesses and capital next year. Hiking rates by a quarter of a per cent gives it a little more wiggle room if things start to turn ugly, and arguably keeps both the hawks and doves happy.