UK inflation may have sunk as low as -0.3% in October after falling to minus -0.1% in September, Capital Economics’ senior UK economist Scott Bowman has said.
Speaking after yesterday’s launch of November’s UK Economics Chart Book which makes a number of economic forecasts, he added that inflation will stay negative until the turn of the year.
Despite it looking likely that inflation will fail to climb to the Bank of England’s 2% target for at least two years, the economist said Capital Economics is sticking to its guns regarding a base rate rise being in the second quarter of 2016.
Bowman said: “Inflation is going to fall between -0.2% and -0.3% in October but we think it’s going to be fairly temporary.
“It should start to pick up around the turn of the year when the falls in energy prices will stop skewing the figures – because energy prices fell at the beginning of the year.
“In fact if energy price falls were taken out of equation already it would make around a percentage point difference.”
The Association of Mortgage Intermediaries has gone on record in predicting a Bank of England base rate rise in the fourth quarter of 2016, but Capital Economics continued to opt for the second quarter.
If this were to occur the Bank would likely ignore its 2% inflation target, as Capital Economics predicted inflation reaching 1.7% by December 2017 with a rebound in productivity growth keeping inflation at low levels.
He added: “We think the market has pushed back expectations a bit too far.
“If the Bank doesn’t rate the base rate there is a danger of inflation overshooting the 2% target.
“We are bullish about productivity growth – the wages firms pay versus the amount of work they produce.”