The cost of living picked up last month, with the Consumer Price Index (CPI) recording an increase of UK inflation to 0.1 per cent – up from zero per cent in June
According to the Office for National Statistics (ONS), the rise is due to a smaller fall in the price of clothing when compared to this time last year. The Retail Prices Index measure of inflation was unchanged at one per cent.
“Business, consumers and rail passengers will cheer this month’s low inflation figures,” says James Sproule, IoD chief economist.
“A temporary period of low inflation is contributing to the UK’s competiveness and underpinning strong economy performance. As the prices of commodities fall, businesses have the opportunity to spend a little less on raw materials, energy and transport, and a bit more on hiring staff, giving pay rises, paying down debt and other investments,” he adds.
“It is important that a low headline rate of inflation does not stand in the way of normalising interest rates. Core inflation has hit a five-month high and the Bank of England expects inflation to return to two per cent over the next few years.
“Combined with strong wage growth, low unemployment and improving productivity, the UK economy is in good health. In such circumstances, it makes no sense for interest rates to be at a historic low.
“The decision on when to raise interest rates is always as much art as it is science, and the Bank of England is looking at a blank canvas. Rates have been at 0.5 per cent for more than six years, and millions of new businesses, homeowners and investors have never known a period of rising rates.
“Therefore, it is right that Mark Carney [governor of the Bank of England] has committed to increasing them at a “slow and gradual” pace. The sooner he acts, the more able he will be to keep the course of rate rises in check.”
Earlier this month, meeting notes of the Bank of England’s Monetary Policy Committee showed that members voted 8-1 to keep rates on hold at a record low of 0.5 per cent.