UK inflation drops back to zero in August, narrowly avoiding deflation territory

The Consumer Price Index stood at 0.0% in August, down from 0.1% in July

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Inflation slipped back to zero in August, narrowly avoiding a return to deflation as some economists had feared.

The Office for National Statistics said the Consumer Price Index - which measures the average cost of a basket of goods - stood at 0.0 per cent in August, down from July's 0.1 per cent.

The ONS said the change was due to a smaller rise in clothing prices compared to a year earlier, as well as “downward effects” from lower fuel prices and sea fares.

Forecasts had suggested that Britain would see deflation for the second time this year after the biggest fall in oil prices since the start of the year.

James Brown, a partner at consultancy Simon-Kucher & Partners, said there could be another bout of falling prices given the direction of petrol costs.

"There is every chance that inflation may venture back into negative territory in the coming months as prices at the pump stay dampened and as lower oil prices feed their way into utility bills," he said.

Low inflation has been a boon for consumers, who have enjoyed greater spending power amid falling food and transport costs.

That has helped send consumer confidence to a 15-year high, according to Deloitte.

It has also been good news for borrowers, as with prices at this level the Bank of England is under no pressure to raise interest rates.

Ian Stewart, Deloitte's chief economist, said it can also help Britain deal with recent macroeconomic turmoil.

"Low inflation is the Bank of England’s trump card in coping with the effects of weakness in China and choppy equity markets," he said.

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