+

Cookies on the Business Insider India website

Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.

Close
HomeQuizzoneWhatsappShare Flash Reads
 

Britain is still in deflation - but don't bet on it staying there for long

Nov 17, 2015, 15:04 IST

Shoppers queue outside Selfridges on the morning of the Boxing Day sales in London December 26, 2012.REUTERS/Olivia Harris

UK inflation figures were just released, showing a 0.1% decline in consumer prices year-on-year, keeping the UK officially in deflation territory.

Advertisement

In September, CPI fell by 0.1% too, and analysts were expecting the same for October. That figure put the UK back in technical deflation for the first time since May.

Since early this year, British inflation has been bumping along near zero, falling from as high as 1.9% in June 2014. A huge part of that is down to the tremendous collapse in oil prices, which have driven the overall index to extremely low growth levels.

So "core" consumer prices aren't as weak as the headline index. Core CPI strips out items like food and fuel, which are more volatile than most prices. In October, it rose by 1.1%.

Analysts had expected a rise of 1%, following the same increase in September. That's well above the broad CPI measure, but far below the 2% targeted by the Bank of England.

Advertisement

How the BoE reacts to inflation is a major concern for investors, and there's a huge division between analysts and the market. Based on the yield curve, markets expect the first hike in interest rates to come at the end of this year, or even later, while analysts are generally forecasting an increase during the first half of the year.

The effect of tumbling oil prices can only last a year unless the price keeps falling, at which point any rebound will start getting counted in the figures - at that point, the Bank might feel something needs to be done to keep inflation in check.

NOW WATCH: JAMES ALTUCHER: This is why owning a home is financial suicide

Please enable Javascript to watch this video
You are subscribed to notifications!
Looks like you've blocked notifications!
Next Article