CPI figure fuels Feb interest rate speculation

Hopes of a cut to the base rate of interest next month are growing following the publication of the latest consumer price inflation (CPI) figure.

The Bank of England has released the statistic for December, showing that CPI stabilised in the month.

It was recorded as 2.1 per cent, just marginally above the government's target of two per cent.

Rising food prices worked to force inflation up, while the cut to the base rate of interest in December helped to keep it under control.

"The stabilisation in consumer price inflation in December keeps a February interest rate cut by the Bank of England very much on the cards, and we expect rates to be trimmed from 5.5 per cent to 5.25 per cent then," said Howard Archer, Global Insight economist.

"The pace and extent of further interest rate cuts by the Bank of England will… depend critically on underlying inflationary pressures being contained by ongoing wage moderation and by companies' pricing power being diluted by slowing growth.

"We believe that this will happen, and that interest rates will be down to 4.5 per cent by the end of this year," he continued.

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