Deflation lingers on lower food prices

More Scottish men save for retirement than women.
More Scottish men save for retirement than women.
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Official figures today showed the UK remains in deflationary territory as a result of lower food and alcohol prices.

The Office for National Statistics (ONS) said the consumer prices index fell by 0.1 per cent in October – the same fall as recorded the previous month.

“Upward price pressures for clothing and footwear and a range of recreational goods were offset by downward price pressures for university tuition fees, food, alcohol and tobacco, resulting in no change to the overall rate of inflation,” the ONS said.

Maike Currie, associate investment director at Fidelity International, said: “This is the third time this year – and since 1960 – that inflation has been negative.

“For now the UK’s weak inflation rate is largely due to external factors – persistently weak global demand and a strong pound pushing down commodity prices. However, as the Bank of England’s chief economist Andy Haldane points out, over time these pressures should wane, and the key factor that will determine the future path of inflation will be domestic costs, specifically labour costs.”

While Britain has seen mild deflation for the first time in more than 55 years, the country is not predicted to see a damaging spiral of persistent deflation, when widespread price falls become entrenched.

The Bank of England forecasts that inflation will begin to pick up and return to the 2 per cent target within two years, with last month’s report suggesting a rate hike in the early part of 2017 would be needed to stop inflation overshooting.

Peter Cameron, associate fund manager at EdenTree Investment Management, said: “Inflation could start to pick up fairly quickly next year as the impact of the falling oil price washes out of the numbers and if current levels of wage growth are sustained. Therefore rates lift-off is definitely on the horizon, but probably not until the second quarter of 2016.”