Low Inflation to Delay BOE Rate Hike, Help Consumers, EY Says

  • No rate increase until inflation moves above 1% in the fall
  • 2016 will be `as good as it gets' for the British consumer

Low U.K. inflation through 2016 will help consumer spending and delay any Bank of England rate increase until late in the year, according to a report from EY Item Club.

The group sees consumer-price growth staying below 0.5 percent in the first half and only reaching 1 percent by the fourth quarter, just half of the BOE’s target of 2 percent. In a report to be published Monday, it will say this makes it “difficult” for the Monetary Policy Committee to follow the Federal Reserve in raising interest rates.

EY will also say consumers will continue to drive the economy in 2016. It will forecast household spending growth of 2.8 percent and economic expansion of 2.6 percent.

“However, 2016 is likely to be as good as it gets for consumer spending in this decade as increasing inflation, interest-rate rises and welfare reform start to bite in later years,” it will say. Against that backdrop, the pace of spending growth will cool to 2.1 percent in 2017 and 1.7 percent in 2018.

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