Flat inflation soothes interest rate fears

14-11-2006

Flat inflation soothes interest rate fears
Inflation was unchanged in October, the government today said, easing worries that the Bank of England will raise interest rates again in the coming months.

Last week the Bank upped rates by a quarter of a per cent to five per cent, but the news that consumer prices index (CPI) inflation is still at September's 2.4 per cent value is a welcome, if unexpected, development for borrowers.

The Office for National Statistics (ONS) today revealed that falling transport costs had the largest downward effect upon inflation, with petrol prices falling on average by 5p per litre between September and October, with furniture and household equipment also going down in price.

Offsetting falling fuel costs was the effect of university tuition fees, with higher education institutes in England and Northern Ireland adopting the new £3,000 top-up fees for the autumn semester.

Other upward effects came from food and non-alcoholic beverages, the ONS said.

Commenting on today's inflation figure, Howard Archer, chief UK and European economist at research firm Global Insight, said: "The unexpected stabilisation in consumer price inflation is very good news for the Bank of England, and obviously reduces the likelihood of another interest rate hike early in 2007."

Meanwhile, the retail price index (RPI) inflation was revealed to have risen 0.1 percentage points to 3.7 per cent during September and October, mainly due to housing costs, which are excluded from CPI inflation.

"On balance, the October inflation data reinforce our belief that interest rates are set to stay at five per cent for some considerable time, but we would certainly not yet rule out another 25 basis point hike around next February," added Mr Archer.


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