Inflation falls to 1.5%

Inflation fell from 1.6 per cent to 1.5 per cent in August, Office for National Statistics figures show.

Driven mostly by a drop in the price of petrol and food, the Consumer Prices Index continues to be well below the Bank of England’s 2 per cent targeted inflation ceiling.

Clothes, transportation and alcohol costs were the strongest risers in the household basket.

Hargreaves Lansdown senior economist Ben Brettell says the Bank of England should not need to be considering hiking rates, given the inflation figures and the political environment.

“With inflation at a five-year low, it is difficult to see why the Bank of England should even consider raising interest rates at present,” he says.

“We are faced with uncertainty around the Scottish referendum, and there are signs the economy is slowing somewhat, with UK manufacturing activity growing at its slowest rate in 14 months in August.”

Inflationary drivers are non-existent – wage growth figures due tomorrow are expected to be a measly 0.5 per cent, he adds.

That means the “wage-price spiral” is not occurring, he explains.

“Considering that the oil price is close to a two-year low, and the supermarket price war remains on-going, I expect CPI inflation to remain well below target for the remainder of this year and into next year.”

However, a subdued inflation outlook may not be enough on its own to keep the bank sitting on its hands in the short term, he says.

“But it should certainly allow the BoE to make good its promise to raise rates slowly and steadily. I still believe the first move will come after next year’s election. If Scotland votes Yes this week, the prospect of a rate rise recedes further into the distance.”