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UK inflation falls to 2.5%

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18/09/2012
The UK's main inflation rate fell back towards the 2% target in August, reversing a surprise jump the previous month.
UK inflation falls to 2.5%

Official data from the Office for National Statistics (ONS) showed the Consumer Prices Index (CPI) inflation rate fell to 2.5% last month, down from 2.6% in July.

Meanwhile the Retail Prices Index (RPI) rate fell to 2.9% in August, down from 3.2% in July.

July’s reading caught out many commentators who forecast a drop to 2.3%, with rising oil prices starting to feed into the reading.

However, the latest figure has once again moved inflation back towards the Bank of England’s 2% target – and helped vindicate the monetary policy pursued by the Bank.

Inflation has come in sharply as global growth has slowed and the UK’s economy struggles to fight its way out of its current low growth malaise.

Having been as high as 5.2% last September, CPI inflation came in at 2.4% in June, the lowest level since November 2009’s 1.9% figure, and down from 2.8% in May.

The Bank of England’s £375bn quantitative easing programme – and its move to slash the base rate to a record low of 0.5% – has helped to stimulate inflation and stave off a deflationary environment.

While the Bank’s governor Mervyn King (pictured) expects inflation to pick up later this year, he is growing increasingly concerned about the outlook for the US and Europe.

King said in June he has been voting for more QE because of these concerns.

He told MPs he “voted for more easing because I see a worsening of the position in Asia and other emerging markets, and because my colleagues in the US are more concerned than they were at the beginning of the year about the US economy, so this is not a comfortable position to be in”.

 

What today’s inflation decrease could mean for the average household and first-time buyer…

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