UK inflation drops to 13-month low of 2.2 per cent

Fall in petrol prices and other transport costs drives drop

Consumer price inflation in the UK fell to an annual rate of 2.2 per cent in October far lower than the BoE’s forecast in August that inflation would exceed 2.8 per cent for the rest of the year. Photograph: Yui Mok/PA Wire

Consumer price inflation in the UK fell to an annual rate of 2.2 per cent in October far lower than the BoE’s forecast in August that inflation would exceed 2.8 per cent for the rest of the year. Photograph: Yui Mok/PA Wire

Tue, Nov 12, 2013, 12:47

Inflation in the UK unexpectedly dropped to its lowest rate for more than a year in October, reassuring the Bank of England that it has ample time to allow the economy to strengthen before it raises interest rates.

Consumer price inflation fell to an annual rate of 2.2 per cent in October from 2.7 per cent in September, the Office for National Statistics said today.

It was far lower than the BoE’s forecast in August that inflation would exceed 2.8 per cent for the rest of the year, although it comfortably exceeds wage growth, meaning pressure on Britons’ living standards will continue.

The fall echoed a similar decline in the euro zone last month, although in that case it was to just 0.7 per cent.

The UK number was well below economists’ average forecasts of a drop to 2.5 per cent and is the lowest rate since September 2012. It was driven by falls in petrol prices and other transport costs and technical effects related to a multi-year programme of university tuition fee rises.

The BoE will publish new forecasts tomorrow, likely to underpin its pledge to keep rates low in the foreseeable future.

“October’s inflation data suggests that the UK economy is hitting a sweet spot of accelerating growth and falling inflation,” said Capital Economics analyst Martin Beck.

“Looking forward, inflation may tick up a touch in November as some of the recent announcements of hefty increases in energy prices start to take effect. But ... underlying pressures are likely to remain subdued,” Mr Beck added.

Sterling hit a two-month low against the dollar but British government bond prices turned positive on the day as the figures eased concerns that persistently high inflation might pressure the BoE to raise interest rates sooner than planned.

In August the BoE committed to keep rates on hold until unemployment falls to 7 percent, unless inflation threatened to get out of control. Unemployment in the three months to September was 7.7 per cent.

Reuters

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