Further fall in inflation expected to rattle Bank

The Bank of England is expected to be rattled by a further fall in inflation. Picture: PA
The Bank of England is expected to be rattled by a further fall in inflation. Picture: PA
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OFFICIAL figures due out this week are forecast to show that the sharp drop in oil prices has pushed inflation further below the Bank of England’s target.

The consumer price index (CPI) measure, which stood at 1 per cent in November, is expected to have eased again last month, mainly due to falling petrol costs and ­ferocious competition in the supermarket sector.

If CPI comes in at more than one percentage point ­either side of the Bank’s 2 per cent goal, governor Mark Carney will have to write to Chancellor George Osborne to explain why and lay out how the central bank intends to react.

Howard Archer, chief UK and European economist at IHS Global Insight, has pencilled in a CPI reading of 0.8 per cent for December.

He said: “With oil prices hitting new lows in January and likely to remain weak for a prolonged period and with the supermarket pricing war continuing, CPI could very well get down near to 0.5 per cent in the early months of 2015 and it is likely to stay below 1 per cent until at least mid-year.”

Inflation data will be published on Tuesday and econ­omists at Barclays said they had cut their CPI forecast from 0.9 per cent to just 0.6 per cent for December, which would mark the lowest reading since June 2002, according to the Office for National Statistics.

Barclays said: “Based on data from the UK Department for Energy & Climate Change, we estimate that average UK retail petrol pump prices fell 5 per cent between November and December.”

Lower bills at the pumps have been welcomed by consumers, but Archer cautioned that some companies may seek to capitalise on improving economic activity by trying to raise their prices to strengthen their margins.