UK inflation ticked up slightly in October but remained close to its five-year low as weak oil prices, a supermarket price war and gloomier world economic outlook kept prices subdued.
The consumer price index rose to 1.3 per cent in the year to October from 1.2 per cent the previous month.
The small rebound was slightly below the 1.4 per cent forecast by the Bank of England and comes after both Mark Carney, the governor, and Andy Haldane, the chief economist, warned that low inflation is the most pressing problem facing the economy.
The BoE and the majority of forecasters expect the headline rate of inflation to weaken during the next few months primarily due to global pressures: crude oil prices are at their lowest level for four years, commodity prices are down about 10 per cent on a year ago and the strength of sterling has reduced the cost of imports.
Mr Carney warned last week that inflation was likely to fall below 1 per cent during the next few months, meaning he would be obliged to write a letter of explanation to the chancellor.
Rob Wood, chief UK economist at Berenberg Bank, said that although he believed the gloom about Britain’s economic prospects was overdone, “low inflation, meagre wage gains and a dovish central bank mean rate hikes are off the table for the next six months”. David Cameron, the prime minister, warned this week that the UK would be unable to avoid the fall out from “red warning lights” flashing for the world economy.
October’s small rise, the first since June, largely reflected a slight easing in the rate of fuel price deflation. Both food and fuel, which have traditionally pushed up the rate, are reducing the headline rate by 0.3 percentage points, the Office for National Statistics said.
Victoria Clarke, economist at Investec, said that in spite of the uptick, the outlook for inflation “looks to be a particularly soggy one”.
Separate industry data from Kantar Worldpanel reported that for the first time since it began collecting data in 1994, the value of the UK grocery market has fallen, down 0.2 per cent from the same 12-week period last year.
Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said that the supermarket battle for a bigger share of sales has ignited a price war, pushing down the price of an average basket of everyday goods.
“This is bad news for retailers but good news for shoppers with price deflation forecast to continue well into 2015,” he added.
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