In January, Britain’s inflation rate slipped below the official 2 percent target for the first time since 2009, making it less likely that the Bank of England will move soon to raise interest rates.
Official figures on Tuesday showed consumer prices were up 1.9 percent in the year to January, down from the 2 percent rate in December. The drop was due to retailers slashing prices on furniture, alcohol and tobacco.
Chris Williamson, the chief economist of Markit, described the combination of falling inflation and strong economic growth as a “Goldilocks” scenario. The Bank of England’s policymakers will be able “to keep their foot on the accelerator for longer, via lower interest rates, to help drive a strong and more sustainable recovery.”
Until recently, the bank had been indicating that its key interest rate would remain at the record low of 0.5 percent until joblessness fell to a more tolerable level. Once that unemployment threshold neared, Mark Carney, the bank’s governor, decided to update the so-called forward guidance to broaden the range of indicators that would be considered before rates are raised.
The low inflation number will give the bank even more freedom to let the economy strengthen before deciding to act on rates.