Inflation falls to 1.5%
19/06/2014
Inflation fell to 1.5% in May 2014 in comparison with 1.8% the previous month; making it the sixth consecutive month where the Consumer Price Index (CPI) was recorded below the Bank of England’s target rate of 2%.
The Office for National Statistics (ONS) said that the key drivers of the reduced rate of inflation included falling flight costs as well as a steep reduction in the costs of food and non-alcoholic beverages.
They said that the price of food and non-alcoholic beverages such as bread, cereal and vegetables fell by 0.6% over the last year – the fastest drop in a decade.
The chancellor, George Osborne, described the fall in inflation as “good news”, adding that it is “another sign that our long term economic plan is working”.
Wages still not growing
However, despite the falling inflation, average wages are failing to keep pace with the cost of living, as these only rose by 0.7% in the three months to April 2014.
Labour’s shadow treasury minister, Catherine McKinnell, welcomed the news but added “most people are still feeling the squeeze”.
She said: “Wages after inflation have now fallen by over £1,600 a year under David Cameron and the link between the wealth of the nation and family finances is broken”.
Others also voiced their feelings that this news meant that the Bank of England should not rush into increasing interest rates; especially because of the concerns that this would increase the cost mortgage repayments.
Jeremy Cook, chief economist at the currency company, World First, echoed these views, as he said: “There is pressure on Mark Carney and the rest of the MPC (monetary policy committee) to hike rates on the back of growth and housing market concerns, but given their central mandate of price stability, there is little cause to alter the current policy as it stands”.
Additionally, Howard Archer, chief UK and European Economist at HIS Global Insight, spoke of his belief that the Bank of England will keep interest rates below 2%. This is because he sees the reduced rate of inflation as good news for consumer purchasing power, and therefore gives the Bank of England “flexibility” over interest rates.
Need financial advice?
If you need to ask a financial question then please contact our financial advisers online or over the phone to get help with your query.
Share this..
Related stories
CBI expects 30,000 financial jobs to go in next six months
In a bitter blow to the UK financial sector the CBI has revealed expectations that 30,000 jobs could be lost over the next six months. When added to the 40,000 job cuts last year across banks, building societies, insurers and investment managers, this does not bode will have the future of one of the U.K.'s largest service sectors.
The CBI is also suggesting that profits and business...
DSG forecasts poor sales continuing into 2010
DSG International, the owner of PC World amongst other leading electrical brands in the UK, has this week forecast that weak sales will continue into 2010 with like-for-like sales forecast to fall by almost 10% in 2009. The company is also seeing significant pressure on profit margins and pricing strategies and with a high fixed cost base it would appear inevitable that more job losses will be ann...
Read MoreHave UK Interest Rates Bottomed Out?
While just a few weeks ago the prospect of further reductions in UK interest rates seemed to be a certainty, things have really changed over the last couple of weeks. First we saw signs that inflation was making a comeback and set to creep past the 4% level and then we started to hear concerns from within the Bank of England with even the most optimistic of members admitting that interest rates c...
Read MoreConservative party admits regulatory cost could rise
Despite attacking the UK government for its record on regulation and the cost of regulation the Conservative party has today admitted that the introduction of a new "Consumer Protection Agency" would likely see an increase in the cost of regulation in the short term. This is a bitter blow to UK companies who had hoped that the introduction of a new government could lead to a simplification of the...
Read MoreSterling Falls For 11th Day In A Row
Sterling has now fallen against the dollar on each of the last 11 trading days which is the longest losing streak for the currency in 37 years. What started as concerns that the UK economy may take longer to recover than others around the world has now moved on to take in more serious concerns.
Inflation, the balance of payments and comments from the Eurozone about the immediate f...