Inflation falls to 27-year low
THE odds on an August interest-rate rise lengthened dramatically today after new figures showed inflation has fallen to its lowest since records began in 1975.
The key underlying inflation rate, which strips out mortgage costs, fell to 1.5% in June, a full percentage point below the Government's 2.5% target. Any lower, and Bank of England Governor Sir Edward George will have to write an open letter of explanation to the Chancellor. The all-items headline rate fell to 1%.
The latest decline was the result of falls in the cost of motoring, seasonal food - and in clothing and footwear in which price inflation is the lowest since records began in 1947.
'You can all but rule out a rate move in August,' said economist George Buckley at Deutsche Bank, as short sterling futures, which track movements in the cost of borrowing, surged. HSBC's John Butler said inflation was unlikely to fall further.
But he added: 'Today's number and the uncertainty attached to the slide in equity prices makes an August move unlikely.' Barclays Capital's David Hillier predicted the rate would stay at 4% until November.
Goods prices are 1.6% lower than a year ago while the cost of services is 4.5% higher.
