Inflation drops as petrol price falls |
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Published
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Tue, 15 Nov 2005 17:20
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Britain's inflation rate fell for the first time in more than a year as fuel prices fell from record highs and bank overdraft charges also were reduced, according to the Office for National Statistics (ONS).
The news will relieve the Bank of England’s Monetary Policy Committee (MPC) when setting interest rates. The consumer prices index (CPI) had risen just by 0.1 per cent in October.
Average recorded prices of ultra low sulphur petrol fell by 1.3 pence a litre in October as against an increase of 1.8 pence a year ago.
Only a slight pinch was felt by the leisure and tobacco segments.
Though inflation remains above the BoE's 2 per cent target, there are definitely signs that prices have fallen which have paved way for expectations that interest rates will come down soon.
Howard Archer of Global Insight says: “We believe the door is opening for an interest rate cut early in 2006 if the economy fails to show sustained, significant signs of improvement over the next couple of months.”
Annual growth in the retail price index (RPI) also fell sharply to 2.5 per cent from 2.7% in September. It is the lowest in two years and is below the expected 2.6% mark. This could reduce concerns that higher inflation in recent months would lead to a demand of higher wages. The driver for fall in RPI was housing depreciation, which was put in place, as property prices increase rate was lesser compared to last year.
On Wednesday, the Bank will come up with its quarterly inflation report, where there will be an outline of its forecasts for inflation over coming months.
In the August report of BoE, the Bank predicted that CPI inflation in the short term would rise above the 2 per cent target. Inflation is then expected to fall before it once again crosses this level at the end of the two-year forecast period.
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