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News - 13 February 2015

Governor says inflation could turn negative in spring

The governor of the Bank of England has said that inflation in the UK could temporarily turn negative in the spring because of falling oil prices, but that prices were likely to rebound around the turn of the year, so this did not mean the economy had entered deflation.

But he said if low inflation persisted, the Bank could cut rates further.

Inflation stands at 0.5%, the joint lowest level on record, and is well below the Bank's target of 2% which prompted a letter from Mr Carney to Chancellor George Osborne explaining the situation.

Mr Carney said that the headlines on inflation masked an underlying stronger economy. He has revised up the Bank's growth and wage forecasts.

Stuart Coleman, Manager of the Tax Department of ABDS comments:
“For 2015 and 2016, the Bank of England sees economic growth of 2.9%. The 2016 prediction is an increase from a previous estimate of 2.6%. Wages are forecast to rise by 3.5% this year, having risen by 1.75% in 2014.”

The Bank governor said that the falling oil price was "unambiguously good" for the economy.
"The combination of raising wages and falling energy and food prices will help household finances and boost the growth of real take-home pay this year to its fastest rate in a decade. This will support solid growth in consumer spending.”

Mr Carney also warned that inflation could be greater than forecast if the extra stimulus provided by low oil prices were to boost the economy more sharply than expected, in which case the Bank could raise rates sooner than forecast.

If you need any help and advice on Management Accounts, Budgets and Cash Flow Forecasts, contact Lavinia Newman, Stuart Coleman or Liz Kennett NOW to discuss how ABDS can help in all your financial planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

Brilliant with numbers   
Great with people  
Clear and precise with advice
Timely and cost effective 
In touch with issues that face our clients and
mindful of their long term strategic goals

Helping Your Business is Our Business

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