Second consecutive month of deflation

THE UK economy remains mired in stagflation after prices nudged down 0.1%.

October’s figure matched September, making it the first time the annualised Consumer Price Index (CPI) has fallen in consecutive months.

The 12-month rate has stayed within plus or minus 0.1% for the last nine months, which adds weight to expectations that there will not be interest rate rises during 2016.

The Office for National Statistics said: “Looking across the year as a whole, prices for transport costs, food and non-alcoholic beverages and (to a lesser extent) recreational and cultural goods and services have had a negative pull on the rate of inflation.

“These have been counterbalanced by a positive pull from price movements for other goods and services, most notably the cost of eating and drinking out, and education costs such as tuition fees.”

Chris Williamson, chief economist at Markit, said: “UK inflation remained in negative territory in October, helping shore up the Bank of England’s belief that there’s no rush to start raising interest rates.

“The deflationary picture supports the Bank of England’s dovish outlook, which envisages interest rates staying on hold until 2017. However, this outlook is dependent on oil prices and wage pressures remaining low, both of which remain something of an unknown.

“The benefit of ongoing low inflation is not only that interest rates will stay lower for longer but that real wage growth remains robust, which will in turn continue to boost consumer spending power and help sustain the economic upturn.”