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| Version 1 | Version 2 |
|---|---|
| Consumer inflation set to fall | Consumer inflation set to fall |
| (10 minutes later) | |
| Official figures due out later on Tuesday are expected to show that UK inflation fell to 4.8% in October. | Official figures due out later on Tuesday are expected to show that UK inflation fell to 4.8% in October. |
| The Consumer Prices Index (CPI) measure reached 5.2% in September. This was the highest level for 16 years. | The Consumer Prices Index (CPI) measure reached 5.2% in September. This was the highest level for 16 years. |
| The Retail Prices Index, (RPI) the alternative measure of inflation, which includes housing costs, is forecast to fall from 5.2% to 4.6% | The Retail Prices Index, (RPI) the alternative measure of inflation, which includes housing costs, is forecast to fall from 5.2% to 4.6% |
| The Bank of England has said inflation could fall below its target of 2% next year - and might drop as low as 1%. | The Bank of England has said inflation could fall below its target of 2% next year - and might drop as low as 1%. |
| This year, the UK economy shrank for the first time since 1992 - falling by 0.5% in the third quarter of 2008. | This year, the UK economy shrank for the first time since 1992 - falling by 0.5% in the third quarter of 2008. |
| This led the Bank of England to lower its key Bank Rate in October by 1.5 percentage points - to 3% from 4.5% - its lowest level since 1955. | This led the Bank of England to lower its key Bank Rate in October by 1.5 percentage points - to 3% from 4.5% - its lowest level since 1955. |
| The impact of the rapidly-slowing UK economy is pulling down cost-of-living increases thanks to falling food and fuel prices - the latter helped by crude oil prices remaining under $60 a barrel. | The impact of the rapidly-slowing UK economy is pulling down cost-of-living increases thanks to falling food and fuel prices - the latter helped by crude oil prices remaining under $60 a barrel. |
| UK inflation figures, which will be published at 0930 on Tuesday, are likely to confirm this trend. | |
| Deflation 'likely' | Deflation 'likely' |
| Figures from the Office for National Statistics, show that output prices - the price of goods leaving the factory - dropped by 1% in October. | Figures from the Office for National Statistics, show that output prices - the price of goods leaving the factory - dropped by 1% in October. |
| Input prices - the cost of raw materials purchased by the manufacturers - dropped by 5.6% in October, the biggest drop since 1986. | Input prices - the cost of raw materials purchased by the manufacturers - dropped by 5.6% in October, the biggest drop since 1986. |
| Falling commodity prices should certainly help to lower price pressures in Great Britain David Song, FXCM currency brokers Work out your personal inflationWhere now for UK inflation? | Falling commodity prices should certainly help to lower price pressures in Great Britain David Song, FXCM currency brokers Work out your personal inflationWhere now for UK inflation? |
| Mervyn King, the Governor of the Bank of England, says it is now "very likely'' that the UK's retail price index will turn negative next year. | Mervyn King, the Governor of the Bank of England, says it is now "very likely'' that the UK's retail price index will turn negative next year. |
| The Bank is expected to cut rates again in December, say economists, perhaps by a full percentage point to 2%, a level not seen since the 1930s. | |
| A short period of deflation - where prices fall in real terms rather than rise - would not be a disaster, but a longer period of falling prices might be, say economists. | A short period of deflation - where prices fall in real terms rather than rise - would not be a disaster, but a longer period of falling prices might be, say economists. |
| In prolonged periods of deflation, consumers hold off buying goods, reckoning they will be cheaper later on, according to economic theory. | In prolonged periods of deflation, consumers hold off buying goods, reckoning they will be cheaper later on, according to economic theory. |
| This can lead to further falls in demand and output. As firms sell less, they respond by cutting jobs or cutting wages. | This can lead to further falls in demand and output. As firms sell less, they respond by cutting jobs or cutting wages. |
| Overall, consumers then have less money to spend - and demand falls yet again. |