Box A: Underlying Inflation in the United Kingdom

Paul Mortimer-Lee () and Paula Bejarano Carbo ()

National Institute UK Economic Outlook, 2023, issue 11, 12-19

Abstract: Inflation is a sustained rise in the general price level. It matters because a high rate of inflation can reduce the real purchasing power of money and fixed incomes and can make relative price movements difficult to spot. It can distort resource allocation and intrude into wage and price setting behaviour, as well as having an important influence on interest rates. Knowing the 'true' underlying trend rate of inflation is important for decisions by the Bank of England in setting interest rates because monetary policy shouldn't respond to volatile or transitory changes.

Date: 2023
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