UK inflation falls back to 0%

The UK saw CPI inflation drop to 0 per cent in August, down from 0.1 per cent in July, according to the Office for National Statistics.

Annual inflation has been around 0 per cent since February this year.

The slight decrease in inflation was mostly due to a drop in fuel prices and food costs, and clothing and footwear increases not being as large as last year, according to the ONS.

Clothing and footwear prices rose by 1.5 per cent compared to one year ago although the increase was smaller than the 2.6 per cent rise seen last year.

In the year to August, food prices fell by 2.8 per cent while prices of petrol and diesel were down by over 15 pence a litre and over 21 pence a litre respectively, ONS figures also show.

In its inflation report, published in August, the Bank of England said the outlook for the rest of the year remains “uncertain”, and is likely to be “sensitive” to developments in Greece, although near term concerns have fallen.

The MPC said inflation will return to the 2 per cent target within two years, as announced in the latest report in May.

Fidelity Worldwide Investment global economist Anna Stupnytska says for an inflation-targeting central bank, “this is not a rate hiking environment”.

She says: “The combination of low inflation, external risks and tighter financial conditions is likely to keep the BoE on hold for the time being. Overall, an interest rate hike this year remains highly unlikely — it certainly will not happen before the Fed finally kicks off its tightening cycle. And while more MPC members might start voting for higher rates in the upcoming meetings, the actual hike is still a 2016 story.”