ANNUAL UK inflation fell further in November, to a four-year low of 2.1%, official figures have revealed.
The relatively benign annual consumer prices index (CPI) inflation rate, down from 2.2% in October and 2.7% in September, was viewed by economists as giving the Bank of England scope to continue to hold UK base rates at a record low of 0.5% for an extended period, even if unemployment were to fall quickly.
The City had forecast that annual CPI inflation in November would be unchanged from October, at 2.2%. Annual inflation now stands just a whisker above the 2% target set for the Bank of England by the Treasury.
Yesterday's inflation figures, published by the Office for National Statistics, showed that food prices exerted a downward influence on the annual inflation rate between October and November. Prices in the food and non-alcoholic beverages category were little changed between October and November, having risen 1.1% between the same two months of last year. Fruit prices rose by less than a year earlier. Vegetable prices fell between October and November, having risen between the same two months of 2012.
Gas and electricity prices also exerted a downward influence, with the ONS noting none of the recently announced rises in charges had affected the November CPI. Last year's rises in household fuel bills, it noted, had begun to affect the CPI in November 2012.
The ONS also noted prices in the restaurants and hotels category had risen by less between October and November than they had at the same time last year.
An upward effect on the annual inflation rate between October and November came from a smaller fall in petrol prices than at the same time last year. Computer games also put upward pressure on the annual inflation rate.
The Bank of England's Monetary Policy Committee said in August that it did not intend to raise UK base rates from their record low of 0.5%, at which they have stood since March 2009, at least until the International Labour Organisation measure of unemployment had fallen to a "threshold" of 7%.
In its inflation report last month, the Bank forecast, if rates were to stay at 0.5% and the scale of its quantitative easing programme were held at £375 billion, ILO unemployment would fall to 7% around the end of 2014. However, it has emphasised that reaching this unemployment level will not automatically trigger a rise in base rates.
Commenting on the latest inflation figures, Samuel Tombs, UK economist at consultancy Capital Economics, said: "It seems likely that the Monetary Policy Committee will be able to keep interest rates on hold even if unemployment falls quickly. We continue to think that CPI inflation is likely to dip below the 2% target in 2014.
"As well as helping to keep official interest rates low, this should help to bring an end to the squeeze on real earnings next year and so provide stronger foundations for a continued recovery in consumer spending."
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "We believe the odds remain strongly in favour of interest rates staying at 0.5% all through 2014. While interest rates will probably start rising in 2015, this may still not happen until well into the year.
"Our current view is the Bank of England will start to raise interest rates gradually from the third quarter of 2015. We suspect that the unemployment rate will get down to the 7% threshold that could lead to an interest rate hike early on in 2015, but we anticipate that the Bank of England will hold off from immediately raising interest rates assuming that there are no nasty inflation shocks."
He declared the Bank would not want to risk choking off growth through a "premature" rate rise.
Annual UK inflation on the old all-items retail prices index measure stood at 2.6% in November, unchanged from October.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article