Markit: Bank of England more concerned about fragile recovery than inflation

Chris Williamson, Markit's chief economist, responds to news of higher than expected inflation.

"The September figure should represent a peak in the rate of inflation, with petrol price rises and January's VAT hike falling out of the year-on-year comparisons in the fourth quarter and the new year respectively. Commodity prices, which tend to lead consumer prices, have fallen just over ten per cent from the peak seen in February, which also suggests we should see some further downward pressure on inflation. Furthermore, with consumer spending remaining very subdued, it seems likely that retailers will need to focus on discounting to win sales in coming months.

"On the other hand, the renewed weakness of sterling will continue to drive up import prices, and oil prices have also begun to creep up again. There is therefore a risk that the rate of inflation could remain higher than the Bank of England is currently projecting and remain above the two per cent target for some time.

"However, we do not expect this to deter the Bank from maintaining an ultra-loose policy stance. The Bank is clearly more concerned about the current fragility of the recovery than current above-target inflation, meaning further stimulus could well be on the cards as policymakers seek to prevent the country from sliding back into recession if business and consumer confidence fails to pick up soon, which seems unlikely."