InvestmentsMay 21 2013

Inflation drop could support further stimulus measures

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The dramatic fall in UK inflation last month could open the door for further stimulus measures from incoming Bank of England governor Mark Carney, according to Kames Capital.

The consumer price index (CPI) measure of inflation fell last month for the first time since September 2012 thanks largely to falling transport costs, although food prices continued to rise.

The CPI measure for April was 2.4 per cent, lower than March’s reading of 2.8 per cent and 0.2 per cent lower than had been expected, while the retail prices index measure of inflation also fell to 2.9 per cent.

Kames Capital’s chief investment officer and manager of the Kames Inflation Linked fund Stephen Jones, said falling inflation could lend support for more monetary action from the Bank of England.

He said: “This is the first time in a long while where inflation data in the UK has surprised so dramatically to the downside. We have been all too used to upside surprises and target misses.

“The policy implications from this one month’s reading are too remote to rely on, but a continued trend to lower inflation in the face of subdued growth will only support the notion that interest rates will stay lower for yet longer, and that the new governor of the Bank of England, Mark Carney, has real scope to be inventive with monetary policy action should he feel so inclined.”