UK inflation bolsters view central bank will not cut rates

LONDON — Inflation in Britain held steady at 1.5% in the year to November, official figures showed Wednesday, reinforcing expectations that the Bank of England will not cut its main interest rate on Thursday.

The Office for National Statistics said the largest downward push on the consumer price index came from accommodation services and tobacco, while the largest upward contributions came from food, and recreation and culture.

The unchanged reading was slightly higher than expectations for a modest decline to 1.4% and ahead of recent Bank of England predictions.

Though inflation remains markedly below target, the Bank of England’s Monetary Policy Committee is widely expected to hold off from cutting its main interest rate on Thursday from 0.75%. Most economists think inflation will start to creep upwards over coming months largely because the U.K. labour market remains tight with record levels of employment, and reduced near-term uncertainty from Brexit.

Samuel Tombs, the chief U.K. economist at Pantheon Macroeconomics, said the central bank will likely remain focused on domestically-generated inflation, which he expects to “strengthen modestly, in response to the tight labour market and likely uptick in GDP growth in the first half of 2020.

“We continue to think, therefore, that investors are mistaken currently to be pricing-in a 50% chance that the (central bank) will cut Bank Rate in the first half of next year,” he said.

The outlook for the British economy remains murky. Though Britain’s departure from the European Union is widely considered to be negative for the long-term health of the economy, the fact that Prime Minister Boris Johnson’s Conservatives won a majority in last week’s election has reduced some of the uncertainty. Brexit is now almost surely going to take place on Jan. 31, and Britain will then enter a transition period through to the end of 2020 whereby it remains in the EU’s economic arrangements but without any voting rights.

Pan Pylas, The Associated Press