Wednesday 18 September 2019 10:18 am

Falling computer game prices drag UK inflation to lowest rate in three years

UK inflation slipped to its lowest point in three years in August, official figures have shown, dragged down by falling computer game prices.

Read more: Fall in UK unemployment pushes earnings growth to 11-year high

Prices in British shops rose by an annualised rate of 1.7 per cent in August, the Office for National Statistics (ONS) said, from 2.1 per cent in July.

The figure was below the Bank of England’s desired inflation rate of two per cent and comes a day before the central bank meets to set interest rates for the economy.

“Games, in particular computer games, accounted for 0.15 percentage points of the fall,” said Andrew Wishart, UK economist at Capital Economics.

Computer games such as FIFA 20 and Borderlands 3 have come to play an increasingly big role in UK inflation. A rise in prices contributed to the first rise in inflation for eight months in July.

August’s reading was also below economists’ expectations of 1.9 per cent inflation. When housing costs are included, inflation was also at 1.7 per cent in August, falling from two per cent in July.

ONS head of inflation Mike Hardie said that alongside computer games the fall was driven by “clothing prices rising by less than last year after the end of the summer sales”.

With inflation falling and earnings growth at an 11-year high of four per cent, Britons are now experiencing a real wage rise of 2.3 per cent.

The pound slipped back following the inflation reading. It was down 0.4 per cent against the dollar by 9.45am UK time, to buy $1.245.

David Cheetham, chief market analyst at online trader XTB, said the figures “could be seen to raise the chances of a rate cut from the BoE”.

“There’s been a clear trend amongst central banks towards lower interest rates in recent months, but the BoE have yet to follow suit with some data points even suggesting that a tighter monetary policy could be warranted were it not for Brexit uncertainty.”

Yet Sam Cooper, vice president of market risk solutions at Silicon Valley Bank, said: “The below target reading is unlikely to derail the BoE’s view of monetary policy ahead of Thursday’s meeting.”

“While the data will likely cause a knee-jerk sell off in sterling and stoke some volatility, market focus and long term direction will continue to be driven by parliamentary and Brexit developments.”

Institute of Directors (IoD) chief economist Tej Parikh said higher real wage growth “will buoy consumers, but upward price pressures are in the pipeline”.

Read more: UK economy shakes off recession fears with growth in June

“Higher wages will eventually translate into inflationary pressure, while the recent decline in the value of the pound and concerns over oil supply will lead to increased input costs for British firms, raising prices across the supply chain.”

(Image credit: Getty)