UK inflation rate falls back to 0%

September 21, 2015

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By Lucy Palmer-Richeson.

The UK’s inflation rate fell back to 0% in August, down 0.1% from July, the Office for National Statistics (ONS) has reported.

The slight drop in inflation, which is measured by the Consumer Prices Index (CPI), was due to a minimal rise in clothing prices from the previous year. Another contributing factor was the sharp fall in the price of petrol and diesel, with a decrease of 15 pence a litre and over 21 pence a litre respectively.

Supermarket price wars and the resulting fall in food prices of 2.8 per cent also caused the drop in inflation.

Capital Economics chief UK economist Vicky Redwood said of the data that inflation could drop even further during the next few months, explaining: ‘The British Gas price cut will show up in the next set of figures and the fall in agricultural commodity prices could push down food price inflation.

“CPI inflation should nonetheless rebound at the turn of the year, on the anniversary of the (much bigger) falls in energy prices at the start of 2015. But with productivity finally picking up and keeping unit wage costs subdued, inflation will still take a long time to return to its target. Accordingly, the Monetary Policy Committee can take its time with the first interest rate rise.”

For the past 20 months, inflation has been below the Bank of England’s set target of 2%.

According to economists, the lack of inflation will continue to boost consumer spending, which will add further to economic growth in the UK.

Many analysts predict that the Bank of England will start to raise interest rates in the first quarter of 2016.