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The rate of UK inflation continues to fall

18/02/2015 … Author:

The rate of inflation fell further than the market had expected in January. The Office for National Statistics (ONS) reported that rate of growth in consumer prices had slowed to 0.3%, compared to 0.5% in December and a consensus forecast figure of 0.4%.

Unsurprisingly it was the sharp fall in food prices, with ongoing supermarket price wars and successful harvests in general over the last 12 months, along with the sharp fall in the oil price, which were the main contributors. Although perhaps a fall greater than anticipated, a fall in headline consumer price inflation is something which was predicted in last week's Bank of England quarterly inflation report.

They also raised the possibility that the headline figure could indeed fall below zero in the short term. Over the forecast period for the report however, which extends over three years, the Bank of England did raise the possibility that, without interest rate rises, CPI could be above the target level of 2% toward the end of the period.

Worthy of note is that core CPI, which excludes volatile food and energy costs, rose to 1.4% in January from 1.3% the previous month. This highlights the significant impact which the collapse in the oil price has had.

The Bank of England last week forecast that inflation, as measured by CPI, will be 0.5% this year, below the 2% target, but that the economy would grow at 2.9%, followed by growth of 2.9% in 2016 and 2.7% in 2017. These are relatively strong numbers compared to the rest of the G8 nations.

With it being estimated that it takes two years for the impact of an interest rate rise to be seen, debate continues as to whether the Bank of England will instigate the first rise in interest rates in the final quarter of this year or the first quarter of 2016.

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