Sep
15

UK inflation slows to 1.6% – BoE expected to keep interest rates at 0.5% well into 2010

Falling prices for a wide range of goods from electricity to fruit, bread and cereals, pushed consumer prices downward in August from July, although by a smaller amount than most economists expected, providing more evidence of the resilience of UK inflation.

Meanwhile, a broader measure of inflation which includes mortgage interest payments, shows prices falling outright.

The Office for National Statistics said that Consumer Price Inflation rose by 1.6 per cent in the year through to August, below the 1.8 per cent rate in the 12 months through July and below the 2 per cent medium target set by the Bank of England’s Monetary Policy Committee.

The Monetary Policy Committee had cited its expectation that inflation would continue to fall in the months ahead when it agreed to increase its purchases of government gilts, known as Quantitative Easing, by £50bn at its meeting in August.

Indeed, Howard Archer, economist at IHS Global Insight, said: “Despite coming in higher than expected, the August inflation data do not fundamentally alter belief that the Bank of England will keep interest rates down at 0.50 per cent well into 2010. The bank could also still further extend its QE programme if bank lending fails to pick up appreciably. “

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