News Analysis: UK inflation rise to bring some cheer for rate-setters

The rise in the UK's consumer price inflation (CPI) figure announced Tuesday of just 0.1 percentage points seems at first sight to cause little stir.

Such a small move in the year-on-year rate in November would normally be a case of "steady as she goes".

Yet, because CPI inflation had dipped, albeit briefly, back into negative territory in October at -0.1 percent, interest rate-setters can take heart that the spectre of deflation is not haunting Britain just yet.

There are positives from continued low inflation; it has now held in a narrow band around 0 percent since February, against a primary target of monetary policy to keep it at 2 percent.

Wage increases are at 3 percent in the three months to September (the last available figures), and consumers see themselves as winners in this scenario.

While low inflation is a hindrance to a return to higher interest rates, it also means that workers are enjoying a healthy increase in their wages for the first time since before the onset of the recession in early 2008. This, in turn, is driving continued growth in the economy as consumers continue spending.

Interest-rate setters on the Bank of England's (BOE) Monetary Policy Committee (MPC) will be pleased at the return to positive territory, but they will be more pleased that core inflation, which strips out volatile figures such as energy, food, alcohol and tobacco, has risen to 1.2 percent from 1.1 percent in October.

However, the entirely-expected decision of this month's MPC to continue holding interest rates at a record low of 0.5 percent is unlikely to be challenged by a steady growth in core inflation.

When the MPC comes to meet again in January it will likely have to take into account continued falling oil prices, with Brent Crude at 37.35 U.S. dollars a barrel on Tuesday against the price in July 2014 of above 110 U.S. dollars a barrel, and a rate-rise from the U.S. Federal Reserve.

It will be a while yet before the MPC seriously considers a rate rise, with IHS European and UK economist Howard Archer predicting that it is "more likely than not" that there will be a rate rise by mid-2016.

The small rise in inflation is unlikely to persuade the MPC to go any earlier, especially as its members have made clear that they would like to see a more prolonged period of wage growth before raising interest rates. In that case a continuation of the low-and-steady inflation rate Britain is currently experiencing can be seen as a pre-cursor to a rate rise in due course. Endit