BoE's focus on UK CPI inflation

In the three months to August, UK employment was 0.5% higher compared to the three months to May. The last observation in Q3 is still missing but this suggests that there was no productivity growth in Q3 (employment and GDP growth grew at the same pace). 

This means that the increasing wage growth is due to a tighter labour market and not increasing productivity growth. This should help boosting inflation towards the 2% target.

"As growth remains solid, the Bank of England's focus is on CPI inflation. The UK was back in deflation in September due to a combination of the falls in oil and food prices and the strong GBP, which weighs on inflation through lower import prices", says Danske Bank. 

UK Services inflation is the only component pulling inflation up at the moment. The annual growth rates in services prices are somewhat volatile but the increase indicates that domestically-generated prices are increasing. 

"The CPI inflation hit the bottom in September and that it could move slightly higher in the coming months before picking up early next year, when the base effects from the fall in oil prices in H2 14 begin to drop out of the consumer price index", added Danske Bank.