The latest UK inflation data showed wages were rising faster than prices but Hargreaves Lansdown's Laith Khalaf warned the outcome of Brexit negotiations would determine the direction of interest rates.
Data released this morning showed UK inflation was 2.4 per cent in October, unchanged from the previous month, but wages grew by 3.2 per cent, meaning wages after inflation grew at their fastest pace since 2008.
Typically, when a central bank is faced with wages rising at the fastest rate for a decade, unemployment at 4 per cent, and inflation considerably above the 2 per cent target rate, policy makers would consider putting interest rates up.
But Mr Khalaf said if the UK left the EU with a deal in place then sterling will probably rise in value, pushing inflation down which, with wages still rising, may prompt the bank to raise rates.
He said if the UK exits without a deal, then rates could either rise or fall.
The largest upward contribution to inflation was transport, particularly motor fuels, with prices rising by 5.3 per cent while the price of food and non-alcoholic beverages, particularly yoghurts and cheese, had the largest downward contribution.
Samuel Tombs, chief UK economist at Pantheon Economics, expected inflation to fall sharply next year as the price of oil was falling
Richard Woolnough, who runs the £23bn M&G Optimal Income fund, said he regarded the direction of interest rates across the world as being upwards.
Josh Mahony, analyst at IG Group, said the inflation data would be a "relief" to the Bank of England as it allowed the central bank to raise interest rates whatever happens with Brexit.
david.thorpe@ft.com
