August inflation dip leaves room for central bank boost
Fruit and vegetables are seen for sale in Soho's Berwick Street Market in central London May 17, 2011.
Credit: Reuters/Paul Hackett
LONDON |
LONDON (Reuters) - British inflation ticked down in August despite a rise in oil and fuel costs, providing the Bank of England with more leeway to inject additional cash into the fragile economy.
The Office for National Statistics said on Tuesday that consumer price inflation slowed to 2.5 percent last month from 2.6 percent in July, in line with economists' forecasts.
British government bond prices ticked up after the release.
The central bank has been hoping that inflation will ease back towards its 2 percent target over the next few months, helping cash-strapped Britons and supporting consumption.
"There is a little bit of relief for me around these numbers," said RBS economist Ross Walker, adding that he had expected greater upward price effects on recreational goods and hotels and restaurants from the London Olympics.
"These numbers don't present any immediate hurdle in terms of further (monetary) loosening."
Easing price pressures for furniture, health, household services and clothing helped bring the annual inflation rate down, the ONS said.
Apart from upward blips in March and July, inflation has been falling since reaching a high of 5.2 percent last September.
The central bank predicts that inflation will ease below its 2 percent target by early 2013, but a renewed rise in oil prices and higher commodity costs threaten to push prices up again.
Factory gate inflation picked up again in August and other surveys have also signalled increasing pipeline price pressures.
Bank policymaker Ben Broadbent - who voted against the current monetary easing round launched in July - has voiced concerns about underlying inflation pressures.
However, other policymakers think that a weak economy and meagre wage increases are limiting companies' ability to raise prices.
Most economists expect the central bank to increase its purchases of government bonds beyond the 375 billion pounds that has been approved so far, once the current 50 billion-pound round is completed in November.
The RPI inflation - used for inflation index-linked gilts - ticked down to 2.9 percent from 3.2 percent in July.
In a separate release, the ONS said that house prices rose 2 percent on the year in July, down from a 2.3 percent increase in June.
(Editing by Jeremy Gaunt.)
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Printing more money will just keep us dragging along the bottom, if we are to rise above the depths we need stimulus.
House prices will drop at least 30 percent over the next 5 years with a 0.5% rate and no willingness to lend as in Japan.
We need to build our way out of this, 500,000 houses with government backed mortgages, if someone has been able to pay £800 per month for 10 years in their rented house then let them have a no deposit government backed mortgage for one of these 500,000 new homes, if they fail to pay the government still has the house, millions of jobs created directly and indirectly.
Build toll roads/toll bridges with gaurantees that tolls be removed once initial investment has been achieved.
For 5 years now millions of middle aged people who bought their homes for peanuts compared to today are just paying 1.5% on their mortgages and the money they are not now paying on their mortgages was supposed to be spent in the economy to help growth, well all they do is pay down their debt, which is great for them but not for the ‘whole’ country, Lord Young said people have never had it so good and Cameron sacked him, Young was right though. The banks need to make interest income if they can no longer do risky business so mortgage rates for EVERYONE must go up, yes I know some of these people had to pay 15% for a short while 30 years ago but their houses cost peanuts and those mortgages should be clear now anyway. The banks can then use these interest payments to lend money to those who are going to grow or expand or wish to.
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