Inflation has fallen to just 1.5% - well below the Government target of 2%. The Treasury announced this morning that inflation in the UK fell from 1.8% in April to 1.5% last month and said that this was the lowest level since October 2009.
Inflation now sits at a third of its 4.5% peak in September 2011. Coupled with the recent low unemployment figures which last week were revealed to have fallen to a five year low, this inflation announcement is positive for the UK economy.
Ahead of the inflation data, the Pound showed mixed trading against its major opponents. While the Pound rose against the Swiss franc, the Euro and the Yen, it held steady against the greenback.
Jeremy Cook, chief economist at the currency company, World First, said the lack of inflationary pressure was the new norm, and a key indicator of developed market economic recovery over the past year.
“Low CPI numbers are being seen in the US and UK, with outright deflation fears in the Eurozone prompting increased action from monetary authorities,” he said.
“Certainly here in the UK - somewhere that is being touted as the first major economy to start tightening and normalising monetary policy - inflation is not a major concern for the BOE, it would seem.”
Cook said that low inflation and low unemployment figures would back up Mark Carney and the rest of the MPC’s plans to raise interest rates at the end of this year – and no sooner.
A Treasury spokesperson said that while lower inflation and rising job numbers show the Government’s long term recovery plan is working there is still work to be done.
“We should remain vigilant to risks that may emerge, including from the housing market,” they warned.
“The biggest risk to economic security would be abandoning the plan that is creating a brighter economic future.”
