Market Watch

12 Year Low for UK Inflation

17 Dec , 2014  

Market Watch WedsUK inflation is down to a 12-year low as a result of sinking fuel prices according to official statistics.

An “early Christmas present” for consumers as the Consumer Price index measured inflation at 1% in November, having been at 1.3% in October. The Retail Prices Index fell to a five-year low of 2% down from 2.3%.

The decline in global oil prices brought the fuel costs involved in air and road travel down by 5.9% in November according to the Office for National Statistics.

Additionally, food prices fell by 1.7%, helped by supermarket price wars, while recreation and culture prices fell by 0.3%.

All this means that after years of failing to keep up, earnings are finally rising faster than prices. The latest report on wage growth in the UK is due today.

The Bank of England, which targets an inflation rate of 2%, warned last month that the rate could drop below 1% in the next six months. The lacklustre outlook will have a knock on affect with interest rates, as it means that the Bank is unlikely to raise them from their historic low of 0.5% for some time.

If inflation falls below 1%, the governor, Mark Carney, would have to write a letter of explanation to the chancellor and it could be a concern to investors. If inflation continues to fall, the UK would move into a eurozone situation of battling to avoid deflation.

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