The FINANCIAL — The rate of annual inflation in the U.K. fell back to zero in August due to cheaper fuel, erasing a small rise in July and further dispelling chances of an early rise in interest rates by the Bank of England, according to Nasdaq.
Consumer prices were flat during the month, the Office for National Statistics said on September 15, compared with on-year growth of 0.1% in July.
Inflation slowed on a fall in the price of motor fuels and a smaller rise in maritime fares and the price of clothing than the year earlier. The strength of the pound relative to other major currencies is also helping to keep import prices low—and exports subdued, economists said.
Factories reported falls in the prices of goods they bought and sold during the month, the ONS said, as cheaper crude oil fed through to the sales of petroleum products.
Central bankers around the globe have seen inflation severely undershoot their mandated targets, as steep falls in oil and other commodities have kept prices low for the past year.
In the U.K., the annual inflation rate has been below the Bank of England’s 2% target for more than a year and a half, but officials remain confident it will rise back to the desired mark by early 2017.
The BOE’s August survey of inflation expectations confirmed last week that households believe prices will edge up in the medium term, warding off concerns that consumers will delay purchases in the anticipation that prices will fall further—a deflation scenario usually feared by policy makers.
Britain is expected to be one of the fastest-growing advanced economies in 2015, after growth expanded 3% in 2014. As a result, the U.K. central bank appears on track to start gently nudging up interest rates early next year, despite increased signs of global turmoil.
Records from the BOE’s September meeting last week, in which rate-setters left borrowing costs pegged at their current record-low of 0.5%, warned against “drawing out major trends from short-term developments.”
By contrast, analysts say the U.S. Federal Reserve is more likely to bow to concerns about a weaker Chinese economy hampering global demand. Earlier expectations of officials announcing an interest rate-rise this week have now cooled, with recent inputs suggesting policy makers have become more skittish about springing into action prematurely.
Most economists agree, however, that the Bank of England is unlikely to raise borrowing costs before the Fed.
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