ADVERTISEMENT

U.K. Inflation Holds Below BOE Target as Fuel Costs Fall

U.K. Inflation Holds Below BOE Target as Fuel Costs Fall

(Bloomberg) -- Motoring costs fell last month and the price of computer games jumped, leaving U.K. inflation comfortably below the Bank of England’s 2% target.

Consumer-price growth held at a near three-year low of 1.7% in September, the Office for National Statistics said Wednesday. Core inflation accelerated to 1.7% from 1.5% in August.

U.K. Inflation Holds Below BOE Target as Fuel Costs Fall

The lack of headline inflation, combined with clear evidence that the labor market is softening, may reinforce the increasingly dovish tilt among Bank of England officials.

The latest signal came from Gertjan Vlieghe, who said Tuesday that further monetary stimulus may be required if Britain fails to reach a deal with the European Union before the Oct. 31 deadline. Even if it succeeds, the case for near-term rate hikes had all-but disappeared given slowing growth in Britain and around the world.

Downward pressure last month came from the price of auto fuel, which fell by 0.7% on the month, second-hand cars and domestic energy bills.

This was offset by recreation and culture costs, with the price of computer games rising as new titles went on sale ahead of the Christmas sales period. There was also upward pressure from furniture, household appliances and hotel stays.

Consumer Boost

Low inflation is good news for consumers, who are enjoying the strongest real wage growth since before the Brexit referendum with average earnings now rising at around 4% a year. And any inflation is a boost for working-age welfare claimants, who are in the fourth year of a freeze on the cash value of their benefits. Payments are normally increased in line with the September CPI, meaning they are set to rise by 1.7% in April as the squeeze comes to an end.

Inflation is expected to dip again this month on cheaper energy after industry regulator Ofgem lowered its price cap. But thereafter everything depends on the outcome of efforts to break the Brexit deadlock.

The Bank of England expects inflation to stay below target until the end of 2020 but its forecasts are based on an orderly Brexit. A no-deal departure from the EU would likely see inflation surge as sterling fell and tariffs were introduced.

Other figures showed pipeline pressures remained subdued, with input prices falling 2.8% from a year earlier, the biggest annual decline since 2016, amid cheaper oil. Output prices rose just 1.2%.

House prices in England and Wales climbed an annual 1.3% in August as Brexit and higher property taxes weighed on the property market. The worst-performing regions were London and southeast England, where values dropped by 1.4% and 0.6% respectively.

©2019 Bloomberg L.P.