Weak inflation knocks sterling to 11-month low
THE POUND fell sharply yesterday as UK inflation for September came in below expectations, reducing the chance of a 2014 interest rate hike.
Prices rose at their slowest pace for five years, according to the Office for National Statistics (ONS), prompting sterling to sink last night to an 11-month low of $1.5905 to the pound.
The consumer price index climbed 1.2 per cent year-on-year last month, marking a decline from 1.5 per cent in August.
Transport costs dragged the figure down after rising only 0.1 per cent over September, down from August’s 1.2 per cent rise.
A sharp decline in oil prices that began in June looks likely to have contributed to lower costs, while petrol prices have also been falling in recent months. Food prices fell by 1.4 per cent on the month too, as competition between the UK’s main supermarkets intensified, cutting margins but benefitting hungry shoppers.
The inflation figure came as a surprise to many economists. Consensus Economics placed expectations at 1.7 per cent.
With inflation now in danger of falling too far below the Bank of England’s two per cent target – it’s allowed one per cent either side – interest rate rises are expected to be delayed.
“The data is now stacking up to suggest a hike could be delayed at least until next summer, after the general election,” said economist Chris Williamson from Markit.
“There is little sign of any inflationary pressures on the horizon,” said Martin Beck, senior economic adviser to the EY Item Club. “The chances of the MPC voting for an increase in interest rates this year have fallen to practically zero.”