Noflation: UK inflation expected to remain at zero

Lynsey Barber
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Inflation is likely to hover around zero in the short term (Source: Getty)

Inflation is expected to remain at zero, or noflation as it has been dubbed, due to falling oil prices and a strong pound.

Forecasters believe the official data from the Office of National Statistics due out on Tuesday, will show that prices remained the same in July.

"Given renewed oil price weakness, with Brent crude having fallen more than 15 per cent in sterling terms in July, and domestic costs pressures still very weak, headline inflation is set to remain unchanged at 0.0 per cent year-on year. When excluding energy prices, core CPI [Consumer Price Index] is expected to have edged slightly higher, by 0.1 percentage point, to 0.9 per cent year-on-year," analysts at Daiwa Capital Markets said.

Read more: Britain falls back into "noflation" territory

CPI may even edge into negative territory again. Prices slipped 0.1 per cent in April - the first time in more than half a century that the price of goods has fallen - and the rate of inflation has hovered around zero since the start of the year.

"Our call on the CPI is that inflation will remain at zero in July, although we judge that there is a material chance that it will ease back into negative territory," said analysts at Investec.

The prospect of inflation remaining at zero makes a rise in interest rates by the Bank of England less likely as it remains some way off of the central bank's two per cent target, despite a more dovish outlook in the latest minutes from the Monetary Policy Committee meeting A vote on whether to raise rates was split for the first time since December.

The BoE's inflation report, released at the same time, lowered its forecasts on inflation for the year from 0.6 per cent to 0.3 per cent while governor Mark Carney said he expected inflation to remain around the zero mark for the next few months.

The latest poll of economists by Reuters found that inflation isn't expected to reach the BoE's two per cent target until 2017. While a rate rise is still expected early next year, the consensus has wavered, with a 53 per cent chance of a rise before April down from 60 per cent in the same poll a month ago.

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