This is going to be a record-breaking year for United Kingdom inflation.
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Consumer prices fell an annual 0.1 percent after stagnating in August, the Office for National Statistics said in London Tuesday.
European markets are poised to open lower for a second day on Wednesday, following a negative lead from Asia although Chinese stocks are holding up quite well despite weaker inflation data overnight.
Core inflation – stripping out energy, food and drink – remained lodged at 1 per cent. HSBC economist Liz Martins said: “This is a weak reading for the United Kingdom, which increases the uncertainty surrounding the timing of the first rate rise”.
He said the low interest rate environment has helped keep firms in business that would have otherwise failed.
Prices in China rose by only 1.6% in September, below expectations of 1.8% and way off the People’s Bank of China’s 3% target.
A mix of low commodity prices and a strong pound relative to other major currencies-especially the euro-is also keeping cost increases subdued across the world, analysts said.
The Belgo-British economist also admitted that the effectiveness of quantitative easing “has declined over time, but that is not to say we do not have tools, just that we have to scale [asset purchases] accordingly”.
The Bank is therefore confronted with a situation in which the inflation rate for goods is now -2.4% while the inflation rate for services is +2.5%. In their last policy meeting, the central bank’s rate-setting panel- the Monetary Policy Committee-voted eight against one in favor of leaving borrowing costs unchanged, amid greater global uncertainty and increasing signs the United Kingdom economy slowed during the third quarter.
Recent government data show workers are producing more output for each hour of work, which is a gauge of how much earnings for employees can grow without stoking inflation.
Dr Esmond Birnie, PwC chief economist in Northern Ireland, said yesterday’s announcement was the first negative monthly figure for CPI since April. “Citi expect inflation will be higher than consensus, perhaps enough to offset any more dovish commentary from new MPC member Vlieghe”.
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Gertjan Vlieghe, making his first public appearance before MPs on the Treasury Select Committee, burnished a dovish reputation as he stressed Threadneedle Street should “wait and see” before raising interest rates for the first time since 2007.
