Economy

UK inflation holds steady at three-year low

UK inflation holds steady at three-year low”

Nevertheless, and perhaps more crucially, the headline rate of CPI stayed below the key 2 percent mark for a second consecutive month, providing little justification for policymakers to consider hiking interest rates anytime soon.

Due to a shortage of supply, prices of the staple meat pork were one of the main drivers of the CPI uptick, while the growth rate narrowed on a month-on-month basis to 19.7 percent in September, said NBS senior statistician Shen Yun.

Another report from ONS showed that output price inflation eased 1.2 percent in September from 1.7 percent in August.

"Motor fuel and second-hand vehicle prices fell, but were offset by price increases for furniture, household appliances and hotel rooms", ONS statistician Mike Hardie said. "Nonetheless, sterling's recent depreciation points to core goods inflation rising to about 1.5% in the first half of 2020, from 0.3% in August, boosting the headline rate by 0.3pp".

Although pork may continue to drive up food prices and the CPI in the fourth quarter, stabilizing measures issued by the government will eventually render supply-demand balance in the market, according to Lian Ping, chief economist at the Bank of Communications.

The BoE has said that underlying inflation pressures mean it may still need to raise interest rates over the medium term - if there is an end to persistent Brexit uncertainty and the global economy recovers from its slowdown. But the central bank has been reticent to make any changes to its monetary policy stance ahead of the 31 October Brexit deadline. "BoE is likely to stay put for a while as, considering how fragile the United Kingdom economy is at the moment, a policy mistake would be disastrous".

But under current guidance from the bank, which assumes that there will be an orderly exit from the European Union, the bank has said that it expects to gradually increase interest rates.

Above-target inflation would also see the bank increase rates, but the 1.7% figure gives credence to the bank's wait-and-see approach. Since then, it has gently trended downwards to 1.7% in August 2019.

"UK inflation has been on a rollercoaster ride since the Brexit vote in 2016", said Andrew Evans, an equity fund manager at Sanlam Investments.



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