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Inflation slips back into negative territory

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13/10/2015
UK inflation, measured by the Consumer Prices Index (CPI), fell back into negative territory in September, according to official figures.

CPI inflation fell to -0.1 per cent last month, compared to 0.0 per cent in August, the Office for National Statistics (ONS) said.

A smaller than usual rise in clothing prices and falling fuel costs were the main contributors to the fall in the rate.

The rate of inflation has been at or around 0.0 per cent for most of 2015. It fell into negative territory in April.

Ben Brettell, senior economist at Hargreaves Lansdown, said: “[Inflation] is expected to climb in the coming months as the big drop in fuel prices falls out of the year-on-year calculation, but core inflation, which strips out volatile components like food and energy, also remains weak at 1.0 per cent.

“This offers little suggestion that underlying inflationary pressures are building in the UK economy, despite continuing strength in wage growth. Figures due out tomorrow are expected to show pay growing at 3.1 per cent.”

Brettell went on to state downside risks to the UK economy remain numerous, including well-documented concerns over China and other emerging markets, but also “signs the domestic economy could be faltering”.

“Last week’s PMI [Purchase Managers Index] survey for the services sector, which accounts for around three quarters of economic output, showed business activity growing at its slowest pace for more than two years. I expect the Bank of England to exercise caution on interest rates. I see them remaining at 0.5 per cent into the second half of next year, and quite possibly even longer than that.”

Maike Currie, associate investment director at Fidelity Worldwide Investment, noted September’s inflation figures will be used to determine how much investors and savers can shelter in an ISA, and by how much a number of benefits are increased in the new tax year including the state pension.

Currie said today’s figures meant increases will be virtually non-existent.

She said: “It is, however, worth remembering that both the ISA allowance and state pension increase will only be confirmed when the Chancellor delivers the Autumn Statement in late November.”

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