UK falls back into deflation
UK CPI inflation turned negative again in September, with the Office for National Statistics blaming falling motor fuel prices and a smaller than usual rise in clothing prices.
The Consumer Prices Index fell by 0.1 per cent in the year to September 2015, the ONS said, down from August’s figure of zero and into negative territory for the first time since April.
Transport made up the largest negative contribution to the figures, with lower fuel costs driving a 0.4 per cent fall, followed by a 0.25 per cent fall in food and non-alcoholic beverages.
Sterling fell in response, dropping 0.5 per cent to $1.526. The euro rose 0.8 per cent against the pound to £0.746.
Peter Cameron, associate fund manager at EdenTree Investment Management, said deflation would make the Bank of England less likely to up interest rates this year.
He said: “Although wage pressures are emerging and the impact of the falling oil price will soon start to drop out of the numbers, a rate hike would have a deflationary effect by pushing up sterling.
“At a time when the European Central Bank is signalling it is ready to expand quantitative easing and the Federal Reserve is likely to delay its own rate lift-off into 2016, the Bank will be fearful of allowing sterling to appreciate too much.”
However, Close Brothers Asset Management CIO Nancy Curtin said the figure was indicative of a relatively healthy UK economy that is “not exactly a steam train bounding ahead at full speed, but certainly enough to keep things moving along at a steady enough pace”.
