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Low inflation underpins feel-good factor, but normalising rates remains a priority

18 Feb 2015

Commenting on official inflation figures released this morning which showed CPI running at 0.3 per cent in January 2015, James Sproule, Chief Economist at the Institute of Directors, said:

“Inflation continues to fall and households and businesses continue to feel the benefit. Tumbling energy costs, combined with a pick-up in wages and strong growth across the economy are resulting in a feel-good factor for consumers and businesses, with two-thirds of IoD members saying they are optimistic about the future.

“There is a widespread acceptance that should the UK dip into deflation it will be temporary. Businesses are looking at how they can make the most from the unexpected windfall and we expect a boost in investment in this period as companies invest in growth by increasing production, paying off debts, taking on staff or offering sustainable pay rises.

“Nevertheless, today’s figures must not stand in the way of starting the process of normalising interest rates. Keeping the base rate at its extraordinary low of 0.5 per cent while the economy is growing and productivity is improving could be a dangerous decision. For rate rises to be gradual, they must start soon.”

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