UK Inflation Expected Close to Zero

The UK’s inflation rate is expected to have remained in negative territory when official figures are released on Tuesday, leaving the Bank of England in little hurry to start raising interest rates.

Economists expect data for October to show the inflation rate as measured by the consumer prices index (CPI) held at -0.1%, according to the consensus in a Reuters poll. Inflation has been at or close to zero for most of this year and first dipped into negative territory in April when prices fell for the first time in more than 50 years.

The rate has been pulled down sharply by a combination of tumbling global commodity prices, from oil to food, and the effects of a strong pound, which makes imports cheaper.

Martin Beck at the consultancy Oxford Economics expects those factors to keep the inflation rate at -0.1% in the latest figures. There should also be some downward pressure on inflation as the effects of higher university fees fade.

“Price growth is continuing to be depressed by the strong pound and cheaper imports. And the effect of the tripling of university tuition fees, which came into effect in 2012, will finally drop out of the annual comparison in October, taking, all else equal, 0.2 percentage points off annual inflation,” said Beck.

While some have described low inflation as a sign of economic fragility, it relieves the pressure on household budgets after several years of wages falling in real terms following the financial crisis.

via The Guardian

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza