On Wednesday, we will get numbers on the most closely watched economic statistics at the moment, specifically on inflation itself. Last month, there was a surprise drop in November CPI inflation to “just” 3.9%. I doubt whether there is much room for a significant improvement this month, but the rate may drop slightly to 3.8% for example.
Again, this would compare favorably with the 4.6% the bank had been expecting, giving hope and support to all those in favor of an early cut in interest rates.
Interestingly, inflation developments here over the past year have closely matched what has been happening in the United States. US inflation data for December, published last week, was disappointing as year-on-year CPI inflation rose from 3.1% to 3.4%.
In fact, this number was heavily influenced by what happened last December, as well as by significant increases in used car prices and accommodation costs, both of which certainly appear temporary. So US inflation is expected to soon resume its downward progress, which bodes well for inflation here.
However, last week, Bank of England Governor Andrew Bailey struck again, making dovish noises on inflation, this time reflecting concern over rising shipping costs due to cargo ships being diverted from the Suez/Red Sea route. Cape of Good Hope, which is much longer and therefore more expensive. This could represent another negative shock on the supply side, which could lead to a sharp rise in inflation, or at least delay its fall.