“A price war amongst the big supermarkets has led to grocery prices dropping by 2.5% over the past year, while growth in clothing prices has been less than normal”.
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The rate is set by the BoE’s Monetary Policy Committee (MPC) and only rises when the nine members agree that a hike should take place.
Last Thursday, McCafferty voted in favour of raising interest rates to 0.75% from 0.50%.
His comments came as September inflation figures showed year-on-year growth in the consumer prices index falling below zero to minus 0.1 per cent. This is the second time this year that the CPI has turned negative and equalling the lowest rate of inflation since March 1960. In giving evidence to the Treasury Committee, Vlieghe said he sees risks to inflation now skewed to the downside due to the possible impact of a global economic slowdown.
Britain’s unemployment rate fell to 5.4% in the three months to August, down from 5.5% in the three months to July, the Office for National Statistics said. We’ll also get the third quarter GDP reading on Monday which is expected to slip below 7% for the first time since the first quarter of 2009.
He also identified the relative strength of the pound as a “headwind” for the economy.
He said there was a greater risk of inflation rising up above the BoE’s 2 percent target than undershooting it. “We would need to see more protracted price falls to really start worrying about serious deflationary risks”, Investec’s chief economist Philip Shaw said. Sterling climbed versus 12 of its 16 major peers on Tuesday, erasing earlier declines against the dollar and the euro, as the Budweiser maker agreed to pay 44 pounds a share in cash for a majority of the shares in its nearest competitor. Increases in productivity, which have always been poor in Britain, are usually hailed by economists as the best way to ensure rises in living standards will be sustained in the medium term. Increasing pay has caused speculation that the Bank of England could increase interest rates.
The Bank of England (BoE) has more reasons than the Fed not to raise inflation, as it has committed to do by the end of 2015 or the beginning of 2016.
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Wage growth remains weaker than before the downturn and the Resolution Foundation, which focuses on issues faced by poorer households, said earnings adjusted for inflation would not return to their pre-crash peak much before 2020.
