Inflation heads out of negative territory in November

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The rate of inflation edged out of negative territory last month, but official figures showed that mild weather drove a record fall in clothing and footwear prices amid widespread discounting on the high street.

The Office for National Statistics (ONS) said the rate of consumer prices index (CPI) inflation rose to 0.1 per cent in November, ending two months in a row of mild deflation.

READ MORE: Deflation lingers on lower food prices

This came as falls in the prices of transport, alcoholic drinks and tobacco were smaller than a year earlier.

The rise in inflation took CPI into positive territory for the first time since July, but CPI has now remained at or close to zero for ten months in a row in the longest run of flat or falling prices since records began.

Shoppers benefited from heavy discounting of clothes and footwear after a relatively warm autumn saw retailers slash price tags to shift stock of winter items, the data suggested.

Prices of clothing and footwear fell by 0.1% between October and November - the first time they have dropped month on month in November since ONS records started in 1996.

But the ONS said the drop also followed a hefty increase in clothing prices between September and October.

Philip Gooding, head of CPI at the ONS, said: “Although the prices of many items continue to fall, because they are falling at a slower rate than at the same time last year, the overall effect is a slight rise in headline CPI.”

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The Bank of England will be relieved to see UK inflation returning to positive territory in November, although most monetary policy committee (MPC) members will want to see core inflation firm more before considering any interest rate hike. It is also evident that MPC members want to see a sustained pick-up in earnings growth before raising interest rates.”

Policymakers at the central bank last week voted eight to one to keep rates unchanged at the record low of 0.5 per cent.

Maike Currie, associate investment director at Fidelity International, said: “Today’s move into positive territory is likely to be short-lived with the massive fall in oil prices and the supermarket discount wars likely to keep a lid on UK inflation as we head into 2016. I expect UK CPI to continue see-sawing around the zero mark for the near future.

“Persistently weak UK inflation means there is little incentive for the Bank of England to raise interest rates. I don’t expect UK interest rates to rise in 2016, and the pace of future rises is likely to be a lot slower too. On the basis of the Bank’s own projections, the most we can hope for are two quarter-point hikes in 2017, which means interest rates may be just 1 per cent a decade after the start of the financial crisis.”

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