UK consumer price inflation remained in negative territory for the second straight month in October, the Office for National Statistics has revealed. Consumer prices decreased 0.1% from a year ago, the same rate of decline as seen in September and in line with expectations. Meanwhile, core inflation that excludes energy, food, alcoholic beverages and tobacco, rose to 1.1% in October from 1% in September.
Core inflation is a more accurate measure of the price fluctuations which hit households, particularly the elderly, who are less likely to have outstanding mortgage payments, and make big-ticket purchases such as white goods and new cars.
Despite the core inflation figure rising, Nick Dixon, Investment Director at Aegon UK, says UK retired households have a reason to be cheerful.
“Today’s news confirming essentially flat prices is welcome for pensioners benefitting from the triple lock annual increase. With average wages rising by about 2.5%, workers should also feel the benefits of their money going further this Christmas,” he said. “With inflation expected to remain zero-bound until Q2 2016, we do not expect the first rate hike until the second half of 2016. Hence no need to lock into a fixed rate mortgage right now.”
Negative Inflation Means No Interest Rate Rise
Sterling rose marginally on the inflation news as the figure was in line with expectations. According to Andy Scott, economist at HiFX, the inflation data reinforces the latest forecasts from the Bank of England that prices are unlikely to rise at their 2% target until late 2017, or even 2018, and therefore it looks like interest rates are likely to be kept on hold next year.
“With Sterling remaining very strong against the majority of currencies, weaker growth in emerging market economies and soft commodity prices, there are few signs that we’re about to see a reversal of this trend of downwards pressure on prices,” he said. “Consumers should be able to look forward to cheaper energy, food and clothing costs for the time being.”
