No interest rate rise likely
Inflation wiped out as supermarket war cuts cost of living
The supermarket price war helped wipe out inflation last month, leaving Britain once again with ‘noflation’. Official figures showed that consumer price inflation fell to 0% in June after its brief return to 0.1% in May.
Lower food and clothing prices were a major factor. The Office for National Statistics said the rate was also affected by a smaller rise in air fares than a year ago.
Bank of England Governor Mark Carney believes prices will pick up this year as the lower oil price works itself out of the calculation. The bank expects inflation to return to its 2% target by early 2017.
Figures due tomorrow are expected to show earnings excluding bonuses to record their biggest rise since early 2009.
Rain Newton-Smith, CBI Director of Economics, said: “Price inflation remains elusive. While this is likely to persist in the coming quarter, inflation should rise relatively swiftly from the end of 2015, as the effect of past falls in oil prices fades.
“Inflation of below 1% over the rest of this year should give the MPC enough breathing space to leave interest rates unchanged at least until early 2016.”
Chris Williams, CEO, Wealth Horizon, said: “Despite the billions of pounds of stimulus that has been pumped into the UK economy, inflation continues to stagnate. The fallout from the supermarket price war continues to weigh heavy, with falling food and clothing prices dragging down the overall figure.
“However, we expect much of this could be short-term. The sharp fall in the oil price last year will soon come out of the equation and, while we do not expect inflation to rocket, we do expect a steady move back towards its official target of 2% as the year progresses.”
Calum Bennie, savings expert at Scottish Friendly, said: “Bank of England Governor, Mark Carney, appeared relaxed in a recent press conference in which he told the British public to enjoy this period of low inflation, and the resulting price drops, while it lasts.
“However, following the Chancellor’s Budget announcement last week that further austerity measures are on the way and that he has his eye on pension tax relief, consumers should be cautious. Rather than spend, Britons may be better to prepare for the future by saving in an investment ISA or tucking extra money away in a pension to take advantage of tax relief while it’s available.”