Inflation rate fall may herald a further interest rate cut

Speculation is growing that a fall in the underlying inflation rate, down to 2.2 per cent, may give the Bank of England’s Monetary Policy Committee further room for manoeuvre to lower interest rates.

Continued severe pressure on manufacturing industry has prompted further calls from industry leaders seeking another cut in the UK interest rate. While analysts had expected the underlying rate of inflation to drop by 0.1 per cent, figures released on Tuesday 14 August by the Office for National Statistics revealed that the rate had dipped by 0.2 per cent.

The all items index RPIX, which excludes mortgage interest payments, showed that inflation rose by 2.2 per cent, down from 2.4 per cent last month.

This is well below the Bank of England’s projected inflation target of 2.5 per cent on the year.

The drop has been attributed to substantial reductions in food prices particularly seasonal produce, which following worries over quality and supply, had experienced a steep rise in July.

The next inflation rate report is due to be produced on September18.

The general Retail Prices Index (RPI) is the main domestic measure of inflation in the UK.

The RPI measures the average change from month to month in the prices of goods and services purchased by most households in the UK.


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