British annual inflation slides to 2.4 per cent

Marco Green
October 17, 2018

The ONS said the largest downward contribution to inflation, which measures the rising cost of living, was thanks to food and non-alcoholic drink prices dropping by 0.1% between August and September.

The result is expected to ease pressure on the Bank of England to raise interest rates in the near future.

That was a bigger jump than any economist had forecast in the Reuters poll, which anticipated a rise of 9.2 percent.

The BoE expects inflation to drift down but stay just above its 2 percent target in two years' time as it gradually raises borrowing costs.

Including bonuses, total earnings rose by 2.7 percent, slightly above the poll's median forecast of 2.6 percent.

Hopes were raised last week that a "lost decade" of pay growth after the financial crisis was finally over when Andy Haldane, chief economist at the Bank of England, said that there was "more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly".

The central bank has said it plans to continue raising interest rates gradually over the next three years, despite the economic uncertainty caused by Brexit, in large part because of the inflation pressure that rising pay will create.

Pay growth for Britain's workers slowed to as low as 0.5% in 2014.

It was only the second hike since the global financial crisis a decade ago and was in response to United Kingdom annual inflation holding stubbornly above the BoE's official 2.0-percent target.

The UK unemployment rate held at its four-decade low of 4% in the three months to August, the ONS said. The Reuters poll of economists had pointed to a rise of 11,000.

Data due on Wednesday is expected to show Britain's consumer price inflation stood at 2.6 percent in September, below a peak of 3.1 percent in November past year but still offering only modest improvement in spending power for workers.

The latest figures are also likely to dissuade the Bank of England from raising interest rates before Britain formally leaves the European Union in five months time as it suggests inflation is gradually returning to the 2% target set for the central bank without the need for higher borrowing costs.

The ONS said house prices in August rose by an annual 3.2 percent across the United Kingdom as a whole, the smallest rise since August 2013 and compared with a 3.4 percent increase in July.

Other reports by Click Lancashire

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