UK inflation dip in Aug. leaves room for more Central Bank boost

Wednesday, 19 September 2012 01:22 - - {{hitsCtrl.values.hits}}

Reuters: British inflation ticked down in August despite a rise in oil and fuel costs, providing the Bank of England with more leeway to inject additional cash into the fragile economy.

The Office for National Statistics said on Tuesday that consumer price inflation slowed to 2.5 per cent last month from 2.6 per cent in July, in line with economists’ forecasts.

British government bond prices ticked up after the release.

The central bank has been hoping that inflation will ease back towards its 2 per cent target over the next few months, helping cash-strapped Britons and supporting consumption.

“There is a little bit of relief for me around these numbers,” said RBS economist Ross Walker, adding that he had expected greater upward price effects on recreational goods and hotels and restaurants from the London Olympics.

“These numbers don’t present any immediate hurdle in terms of further (monetary) loosening.”

Easing price pressures for furniture, health, household services and clothing helped bring the annual inflation rate down, the ONS said.

Apart from upward blips in March and July, inflation has been falling since reaching a high of 5.2 per cent last September.

The central bank predicts that inflation will ease below its 2 per cent target by early 2013, but a renewed rise in oil prices and higher commodity costs threaten to push prices up again.

Factory gate inflation picked up again in August and other surveys have also signalled increasing pipeline price pressures.

Bank of England policymaker Ben Broadbent - who voted against the current monetary easing round launched in July - has voiced concerns about underlying inflation pressures.

However, other policymakers think that a weak economy and meagre wage increases are limiting companies’ ability to raise prices. Most economists expect the central bank to increase its purchases of government bonds beyond the 375 billion pounds that has been approved so far, once the current 50 billion-pound round is completed in November.

The RPI inflation - used for inflation index-linked gilts - ticked down to 2.9 per cent from 3.2 per cent in July.

In a separate release, the ONS said that house prices rose 2 per cent on the year in July, down from a 2.3 per cent increase in June.