UK inflation falls

There is now increased scope for the Bank of England (BoE) to reduce interest rates to avert an even deeper slip into recession, as inflation has fallen faster than predicted in its quickest drop in over 11 years.

This news follows Mervyn King’s statement that the UK is probably in recession, although the central bank will reduce borrowing costs as and when is possible.

During the last month, consumer prices have fallen by 0.7 percent which allowed the BoE to drop the interest rate by 1.5 percent., down to 3 percent.

It seems as though inflationary pressures have now ceased and analysts are predicting that it will fall well below targets for next year, even though it stands above the 2 percent ceiling rate that the BoE hold.

The British pound has made gains against the dollar and the euro after the announcement, currently standing at $1.4987 and at 84.09 pence against the euro.

It is a combination of falling consumer prices, oil, transport and food costs that have helped to drive inflation down.

It is now the risk of outright deflation that is at the fore, hence the likelihood of even more aggressive rate cuts.

Story link: UK inflation falls