UK inflation rate dips into rare negativity reflecting weak prices

BOE still thought to be months away from raising 0.5% interest rate

Britain’s inflation rate turned negative for only the second time since 1960 in September, reflecting a weak price backdrop that the Bank of England has warned will persist into 2016.

Consumer prices fell an annual 0.1 per cent after stagnating in August, the Office for National Statistics said in London on Tuesday.

Economists had forecast stagnation. Prices last declined in April, which was the first sub-zero reading since 1960.

The figures will reinforce the view that the BOE is still months away from raising its benchmark interest rate from a record-low 0.5 per cent.


While the economy is growing and the labour market tightening, inflation remains far below the bank’s 2 per cent target and officials are wary of the potential impact of the global slowdown.

The BOE said last week that its near-term outlook for inflation had weakened since August and that price growth will probably stay below 1 per cent until spring 2016.

Just one policy maker, Ian McCafferty, voted to raise rates this month. "Though inflation has turned very slightly negative this month, the bigger picture is of a broadly flat inflation rate since the beginning of the year," said Richard Campbell, head of CPI at the statistics office.

The pound fell to a one-week low against the dollar after the data and was trading at $1.5258 as of 9.34am in London.

The biggest downward impact on the annual inflation rate was from clothing and footwear, as well as gasoline.

Core inflation remained at 1 per cent last month, missing forecasts for a reading of 1.1 per cent.

Services inflation, a proxy for domestic price growth, accelerated to 2.5 per cent from 2.3 per cent in August.

The retail-price measure of inflation slowed to 0.8 per cent from 1.1 per cent, the least since November 2009.

- Bloomberg