Spencer Dale, chief economist of the Bank of England said that inflation in the UK market is expected to remain ‘sticky’ around the 2% mark for the near future.
He says that inflation is expected to remain near the 2% target or higher, as the UK economy continues to make necessary adjustments due to the global and domestic economic down-turn.
He commented further that the UK economy is ‘still adjusting to the new realities’ of a global economic crisis. As part of this crisis, there is weakness in productivity and depreciation of the sterling. This also impacts a rise in commodity and household goods prices, as well as a rise in VAT. As a result more households are worse off as money does not go as far.
Real wages have also dropped by 15% however this is partly a result of higher inflation created by the current changes in the economy.
If inflation is to stay around the 2% mark as expected, this may have the impact of keeping current mortgage rates relatively low, which may work out positively for the housing market.
