UK inflation drops back to zero in August

Inflation edged down to zero in August amid a renewed fall in petrol prices and subdued price rises on the high street, reports The Telegraph.

The Office for National Statistics (ONS) said the drop in consumer prices inflation to zero from 0.1pc in the year to July was mainly driven by falling transport costs and smaller increases in clothing and footwear prices than a year ago.

This more than offset a slight rise in the cost of household goods and steadier food prices, which had been falling in recent months.

The headline rate was also in line with economists’ forecasts, pushing up the pound against the dollar and euro on Tuesday morning as Britain avoided dipping back into deflation.

Core inflation, which strips out volatile movements in food and energy costs, edged down to 1pc in August, from 1.2pc in July, following a marked rise in the previous month.

Mark Carney, the Governor of the Bank of England, said in August that it “wouldn’t be surprising if we have another month or two of negative inflation”.

Analysts agreed. “Looking ahead, inflation could yet drop back into negative territory before the end of the year,” said Vicky Redwood, an economist at Capital Economics.

“The British Gas price cut will show up in the next set of figures and the fall in agricultural commodity prices could push down food price inflation. CPI inflation should nonetheless rebound at the turn of the year, on the anniversary of the (much bigger) falls in energy prices at the start of 2015.

“But with productivity finally picking up and keeping unit wage costs subdued, inflation will still take a long time to return to its target. Accordingly, the [Bank of England] can take its time with the first interest rate rise.”

Separate data showed factory gate prices fell by 1.8pc in the year to August, compared with a fall of 1.6pc in July.