Inflation in Britain fell in October, paving the way for further cuts in interest rates. Prices fell 0.1 per cent compared with September with downward pressure on housing costs, clothing, fuel and leisure goods offsetting rises in seasonal food and household services, particularly mobile phone tariffs.
In the 12 months to October, the headline rate of inflation slowed to 1.6 per cent, according to the Office of National Statistics, as cheaper mortgage costs eased household budgets. The Bank of England's preferred measure of inflation, which strips out home loan payments, was 2.3 per cent in the year to October, unchanged from the previous month and comfortably within the Government's 2.5 per cent inflation target.
George Buckley, a UK economist at Deutsche Bank, said: "The outlook going forward looks benign, with upstream price pressures non-existent. This should give the Bank of England scope to cut interest rates further in the coming months should the real economy data weaken further, as we expect it will."
John Butler, at HSBC, was more cautious saying: "Low inflation should not give the MPC [Monetary Policy Committee] free rein to keep slashing interest rates from here. Rate cutting will come at a cost and that cost will be even greater indebtedness of the private sector. That will leave them vulnerable to interest rate rises in the future."
Weak inflation has enabled the Bank to cut interest rates seven times this year to 4 per cent, including last week's 50 basis points cut. Rates have not been lower since 1955. The Bank is expected to trim its forecasts for inflation in its next quarterly Inflation Report due out today.
The inflation figures showed that clothing prices fell due to deeper and more widespread special offers this year compared with last October. Some leisure goods, including toys and computer games, also showed some weakness in contrast to last year's rises.
Separately, the CBI yesterday warned that a further 30,000 manufacturing jobs will be lost in the fourth quarter of this year. Its regional trends survey showed a severe drop in business confidence and optimism as export prospects waned.
The survey said the job losses would be spread across all regions though the largest fall would be in the South-east with 8,000 jobs expected to be cut. The falls in export optimism was worst in the West Midlands, Wales, Scotland and Northern Ireland where the declines are the largest since the survey started in 1990.Reuse content