UK inflation slowed more than expected in November, data from the Office for National Statistics showed. Inflation slowed to 1% in November from 1.3% in October, this means that inflation is now at half the target rate of 2%. The fall will mean Bank of England governor Mark Carney will have to write to Chancellor George Osborne to explain why inflation is so far off the target rate.
Although low inflation is good news for consumers’ everyday spending, inflation is important to the British economy and helps erode the deficit.
The drop is also bad news for savers, as low inflation delays the likelihood of rate rise.
“Any savers that are keeping their money in a cash savings account will continue to be left out in the cold and will face the forlorn prospect of seeing their money generate only minimal returns over the long-term,” said Calum Bennie, savings expert at Scottish Friendly.
Economists had forecast prices to rise by 1.2%. The fall in transport costs as well as the decline in recreational goods prices contributed to the slowdown. Core inflation that excludes energy, food, alcoholic beverages and tobacco, eased to 1.2% in November from 1.5% in October. The rate of inflation faced by households has fallen to 12-year low, the ONS said.
“Today’s data release further underlines the case for leaving interest rates on hold. In fact, given the weakening growth outlook and the absence of inflationary pressure, it is difficult to see why the Bank of England would even consider higher interest rates at present. I fully expect them to remain on hold until at least the fourth quarter of next year, and quite possibly into 2016,” said Ben Brettell, senior economist, Hargreaves Lansdown.
