UK’s Inflation Drops Below Zero Once More - Image

UK’s Inflation Drops Below Zero Once More

September saw the UK’s inflation rate drop to -0.1%, with the ONS saying that a fall in road fuel costs and a less-than-expected rise in clothing prices were at fault. It is the second time this year that inflation has dipped below zero, and it eases pressure on the Bank of England to raise interest rates, which remain at a record low.

The figures show inflation fell from 0% in August to -0.1% in September. Although some analysts thought that we may witness a fall such as this, the majority believed that it would hold at zero. This is the second time inflation has fallen into the negative this year. It fell below zero firstly in April this year, which was the first time in 50 years it had done so. It had been close to this level since February.

As a result, some analysts believe that the negative result over the last month is relatively insignificant, as the long-term picture is of a broadly flat inflation rate. The pressure, it is believed, comes from falling petrol and diesel prices and clothing. A price cut from British Gas may also have been a factor.

Although some believe that the data may show economic fragility, George Osborne, The Chancellor of the Exchequer, played down such fears. The government sets the Bank of England inflation targets (currently 2%), but the rate has been well below this level since 2014. With this in mind, the Bank of England have held interest rates at a record low level of 0.5% for more than six years.

Although many economists strongly believed that they would rise above this rate this year, it now appears that there is little chance of this until mid-2016 at the earliest. Indeed, at the latest Bank of England meeting, only one of the members of the bank’s Monetary Policy Committee voted for an increase in the rates.

The Governor of the Bank of England, Mark Carney, agrees with the Chancellor, believing that the UK is not in danger of long-term deflation and that falling prices will not become entrenched. As a direct result, Mark Carney has told Brits to enjoy low inflation while it lasts and the government has pledged to boost household budgets, with wages rising faster than prices.

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