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| Fuel price plunge pulls UK inflation back to 0% | Fuel price plunge pulls UK inflation back to 0% |
| (about 9 hours later) | |
| Sharp falls in petrol and diesel pulled UK inflation back down to zero last month as tumbling crude oil prices trickled down to households. | Sharp falls in petrol and diesel pulled UK inflation back down to zero last month as tumbling crude oil prices trickled down to households. |
| Official figures showed inflation on the consumer prices index edged back down to 0.0% in August from 0.1% in July, continuing the trend since the start of this year of virtually no year-on-year rise in living costs. Inflation has been below the Bank of England’s 2% target for the past 20 months. | Official figures showed inflation on the consumer prices index edged back down to 0.0% in August from 0.1% in July, continuing the trend since the start of this year of virtually no year-on-year rise in living costs. Inflation has been below the Bank of England’s 2% target for the past 20 months. |
| Economists said the lack of inflation would continue to boost consumer spending, the main driver of economic growth in the UK. | Economists said the lack of inflation would continue to boost consumer spending, the main driver of economic growth in the UK. |
| “This period of noflation or lowflation – whatever you want to call it – has undoubtedly been good news for the UK. The falling price of essentials has come at the same time as a rapid acceleration in wage growth since the start of the year, boosting discretionary spending power,” said Scott Corfe at the Centre for Economics and Business Research thinktank. | “This period of noflation or lowflation – whatever you want to call it – has undoubtedly been good news for the UK. The falling price of essentials has come at the same time as a rapid acceleration in wage growth since the start of the year, boosting discretionary spending power,” said Scott Corfe at the Centre for Economics and Business Research thinktank. |
| ‘Lowflation’ | ‘Lowflation’ |
| The headline figure was in line with the consensus forecast in a poll of economists by Reuters. But some had been expecting cheaper fuel to nudge inflation down to -0.1% or even -0.2% , marking a return to the negative territory hit in April this year when prices fell for the first time in more than 50 years. | The headline figure was in line with the consensus forecast in a poll of economists by Reuters. But some had been expecting cheaper fuel to nudge inflation down to -0.1% or even -0.2% , marking a return to the negative territory hit in April this year when prices fell for the first time in more than 50 years. |
| As a result, the pound strengthened against the dollar after the data, as some traders wagered it left the door open for the Bank of England to start raising interest rates after more than six years at a record low of 0.5%. | As a result, the pound strengthened against the dollar after the data, as some traders wagered it left the door open for the Bank of England to start raising interest rates after more than six years at a record low of 0.5%. |
| The US Federal Reserve is expected, by a slim majority of economists, to hike its main interest rate this week, although experts believe the UK’s central bank will wait until at least early next year to follow suit. | The US Federal Reserve is expected, by a slim majority of economists, to hike its main interest rate this week, although experts believe the UK’s central bank will wait until at least early next year to follow suit. |
| Related: UK inflation rate falls back to zero - live updates | Related: UK inflation rate falls back to zero - live updates |
| The Bank of England governor, Mark Carney, has hinted at a possible move around the turn of the year. He has also sought to play down fears about the UK falling into outright deflation and said cheaper oil prices were positive for the UK economy as they boost household budgets. | The Bank of England governor, Mark Carney, has hinted at a possible move around the turn of the year. He has also sought to play down fears about the UK falling into outright deflation and said cheaper oil prices were positive for the UK economy as they boost household budgets. |
| Ian Stewart, chief economist at consultancy Deloitte, said the latest inflation figures pointed to more support for consumer confidence. “With the price of essentials like food, transport and fuel down sharply on a year ago, inflation is flat on its back,” he said. | Ian Stewart, chief economist at consultancy Deloitte, said the latest inflation figures pointed to more support for consumer confidence. “With the price of essentials like food, transport and fuel down sharply on a year ago, inflation is flat on its back,” he said. |
| “With inflation forecasts for next year sliding, the Bank is under no pressure to hike rates. Low inflation is the Bank of England’s trump card in coping with the effects of weakness in China and choppy equity markets.” | “With inflation forecasts for next year sliding, the Bank is under no pressure to hike rates. Low inflation is the Bank of England’s trump card in coping with the effects of weakness in China and choppy equity markets.” |
| Fuel and clothing keep inflation down | Fuel and clothing keep inflation down |
| The Office for National Statistics said the main downward pressure on inflation in August came from clothes prices rising by less than they did a year earlier, and from cheaper fuel prices. Diesel fell by 6.2p a litre and petrol fell by 2.4p a litre last month, both bigger decreases than a year ago. | |
| Fall in #CPI mainly due to clothing and motor fuel http://t.co/deSg7gBca9 #inflation | Fall in #CPI mainly due to clothing and motor fuel http://t.co/deSg7gBca9 #inflation |
| The core rate of inflation, which strips out volatile items such as food and energy, edged down to 1.0% in August from 1.2% in July. That slowdown and recent signs that the economy may be losing steam would likely keep interest rates on hold well into 2016, said economists. | The core rate of inflation, which strips out volatile items such as food and energy, edged down to 1.0% in August from 1.2% in July. That slowdown and recent signs that the economy may be losing steam would likely keep interest rates on hold well into 2016, said economists. |
| Anna Stupnytska, global economist at Fidelity Worldwide Investment, said: “Before inflation shows definitive signs of a pick-up, which is unlikely to happen this year, the BoE will have to exercise caution. In addition to the lack of inflation, the economic recovery remains quite uneven. While the pace of growth is still decent at this point, tentative signs of a slowdown are appearing in the data.” | Anna Stupnytska, global economist at Fidelity Worldwide Investment, said: “Before inflation shows definitive signs of a pick-up, which is unlikely to happen this year, the BoE will have to exercise caution. In addition to the lack of inflation, the economic recovery remains quite uneven. While the pace of growth is still decent at this point, tentative signs of a slowdown are appearing in the data.” |
| The Trades Union Congress also raised concerns over the economic outlook. “Zero inflation is not a route to raising living standards,” said the TUC general secretary, Frances O’Grady. | The Trades Union Congress also raised concerns over the economic outlook. “Zero inflation is not a route to raising living standards,” said the TUC general secretary, Frances O’Grady. |
| “The recovery can’t be taken for granted and we need significant investment in skills, innovation and infrastructure to boost productivity and ensure a sustainable economy that works for the many and not just the few.” | “The recovery can’t be taken for granted and we need significant investment in skills, innovation and infrastructure to boost productivity and ensure a sustainable economy that works for the many and not just the few.” |