UK Inflation Rate Drops More Than Forecast to Five-Year Low
Oct. 13 (Bloomberg) -- The U.K. inflation rate dropped inSeptember by more than economists forecast to the lowest in fiveyears as the worst recession in a generation purged costpressures throughout the economy.
Consumer prices rose 1.1 percent from a year earlier,compared with 1.6 percent the previous month, the Office forNational Statistics said today in London. The median forecast ina Bloomberg News survey of 31 economists was 1.3 percent. On themonth, prices were unchanged for the first time in a Septembersince records began in 1996.
Bank of England policy makers this month stuck to their planto spend 175 billion pounds ($276 billion) of newly created moneyon assets to foster economic growth after five quarters ofcontraction. The U.K. may not have escaped recession in the thirdquarter, and the bank should consider buying more bonds to securethe recovery, the British Chambers of Commerce said today.
``The economy is in the grip of low inflation, with lots ofspare capacity,'' said Trevor Williams, chief economist at LloydsBanking Group Plc in London. ``I expect the bank to extendquantitative easing. Withdrawing the stimulus now would be a realshock.''
The main contributors to slower inflation were utilitybills, food prices, and restaurant and recreation, the statisticsoffice said. The 7.3 percent annual drop in prices forelectricity, gas and other fuels was the biggest since recordsbegan. Transport and clothing costs rose on the year.
Sainsbury, Tesco
J Sainsbury Plc, the U.K.'s third-biggest supermarket owner,reported decelerating sales on Oct. 7 and said revenue growthwill become more difficult to achieve as food inflation eases.Tesco Plc, the world's third-largest retailer, said Oct. 6 thatsales growth cooled due to slower food-price inflation.
Bank of England policy makers said in the minutes of theSeptember meeting that ``inflation would probably be higher inthe short-term than the committee had thought a month ago, thoughit was still likely to be extremely volatile.''
Core inflation, which strips out the cost of tobacco,alcohol, food and energy, was 1.7 percent in September comparedwith 1.8 percent in August, the statistics office said.
The retail price index, a cost-of-living measure used inwage bargaining, showed a 1.4 percent annual drop, compared witha 1.3 percent decline in August, the statistics office said.Excluding mortgage interest payments, retail prices rose 1.3percent on the year.
The Bank of England last week left the key interest rate ata record low of 0.5 percent and said it will spend the remainderof its planned bond purchases. The bank's forecasts showinflation will probably drop below 1 percent later this year andmiss its 2 percent goal in three years.
The BCC said today that the economy may not have exited therecession in the third quarter and that the central bank has roomto expand asset purchases to 200 billion pounds next month. TheBank of England's next decision is Nov. 5.
To contact the reporter on this story:Brian Swint in London at bswint@bloomberg.net.
Last Updated: October 13, 2009 04:30 EDTSource: Bloomberg
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