New Inflation Figures will not stop an Interest Rate Cut, IoD says

18 October 2005

An interest rate cut in November is still likely despite rising inflation, the Institute of Directors (IoD) said today. With consumer prices increasing by 0.1% in September, the IoD predicted a quarter point cut in rates if retail sales figures, also out this week, prove to be disappointing.

Graeme Leach, Chief Economist at the IoD said:

"Today's inflation numbers were better than expected. The increase in the headline rate from 2.4% to 2.5% was due to the impact of energy prices. Excluding energy, inflation fell for the second month in a row, from 1.8% to 1.7%. Competition in the High Street remains fierce and as yet there is no evidence of 'second round' effects on whole economy inflation, from the surge in energy prices.

"All eyes now turn to this week's retail sales figures. If these are weak, the odds of a quarter point interest rate reduction in November will significantly increase, despite above target inflation at present."