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Drop in UK inflation takes pressure off Bank of England to hike rates Moderating inflation cuts likelihood of Bank rate rise
(about 7 hours later)
Another fall in inflation in August has pushed back the likelihood of the Bank of England imposing an early hike in interest rates, City analysts said today. Another fall in inflation during August has pushed back the likelihood of the Bank of England raising interest rates, City analysts said on Tuesday.
Consumer prices were up just 1.5 per cent year on year last month according to the Office for National Statistics, down from the 1.6 per cent rise recorded in July and matching May’s four-year low. Consumer prices were up just 1.5 per cent year on year last month, according to the Office for National Statistics, down from the 1.6 per cent rise recorded in July and matching May’s four-year low. The reading was in line with the City’s expectations and the annual rate has now been below the central bank’s official 2 per cent target for  eight consecutive months, the longest continuous period since 2005.
The reading was in line with the City’s expectations and the annual rate has now been below the central bank’s official 2 per cent target for eight consecutive months, the longest continuous period since 2005. “It is difficult to see why the Bank of England should even consider raising interest rates at present,” said Ben Brettell of Hargreaves Lansdown.
“It is difficult to see why the Bank of England should even consider raising interest rates at present” said Ben Brettell of Hargreaves Lansdown. “This is clearly not the time to put the recovery at risk with premature interest rate rises” agreed David Kern of the British Chambers of Commerce. David Kern of the British Chambers of Commerce agreed, saying: “This is clearly not the time to put the recovery at risk with premature interest rate rises.”
Last week the Bank’s Governor Mark Carney hinted that rates could rise next Spring. But Howard Archer of IHS Global Insight said there was a “mounting possibility” that the Bank would now not raise rates until the second quarter of next year. Last week the Bank’s Governor, Mark Carney, had hinted that rates could rise next spring.
He added that a “yes” vote in Thurday’s Scottish referendum could push an increase in the cost of borrowing back still further. But Howard Archer of IHS Global Insight said there was a “mounting possibility” that the Bank would not raise rates until the second quarter of next year.
“An interest rate hike would highly likely be delayed if the Scots vote for independence and there are signs that the economy is being adversely affected in the uncertain aftermath” he said. He added that a Yes vote in tomorrow’s Scottish referendum could push an increase in the cost of borrowing back still further.
Two members of the Bank’s rate-setting Monetary Policy Committee, Martin Weale and Ian McCafferty, voted to put up rates from 0.5 to 0.75 per cent in August. “An interest-rate hike would highly likely be delayed if the Scots vote for independence and there are signs that the economy is being adversely affected in the uncertain aftermath,” he said.
Minutes from September’s MPC meeting, due out tomorrow, will show whether any of the other members of the nine-person committee joined them this month. In August two members of the Bank’s rate-setting Monetary Policy Committee, Martin Weale and Ian McCafferty, voted to put up rates from 0.5 to 0.75 per cent. Minutes from September’s MPC meeting, due out tomorrow, will show whether any others on the nine-member committee joined them this month – or indeed whether they still favour a rise. Inflation is already undershooting the Bank’s expectations, with last month’s Inflation Report pointing to annual CPI growth of 1.8 per cent in the third quarter of this year.
Inflation is already undershooting the Bank’s expectations, with last month’s Inflation Report pointing to annual CPI growth of 1.8 per cent in the third quarter of this year. The ONS said the fall in the inflation rate was driven by lower prices for food and non-alcoholic drinks. An easing in price increases for furniture and household goods also made a contribution, as did restaurant and hotel prices. Upward pressure came from clothing and footwear and alcohol and tobacco.
The ONS said that the fall in the inflation rate was driven by lower prices for food and non-alcoholic drink. An easing in price increases for furniture and household goods also made a contribution, as did restaurant and hotel prices. Upward pressure came from clothing and footwear and alcohol and tobacco. Wholesale or factory-gate prices were also weak in August, according to the ONS, falling 0.3 per cent year on year and suggesting that inflationary pressures in the economy are receding. However, the ONS also reported that UK house prices rose 11.7 per cent in the year to July, up from a 10.2 per cent increase in the year to June.
Factory gate prices were also weak in August according to the ONS, falling 0.3 per cent year on year in August and suggesting that inflationary pressures in the economy are receding.
However the ONS also reported that UK house prices were up 11.7 per cent in the year to July, up from a 10.2 per cent increase in the year to June.