Britain dips back into deflation

Deflation returned to Britain last month, the second time since April that prices fell year-on-year.

764-shopper-634

Falling prices put more money in our pockets

Deflation returned to Britain last month, the second time since April that prices fell year-on-year. The annual rate of consumer price inflation (CPI) slid to -0.1% from 0% the month before,thanks largely to lower petrol prices. Core inflation, which strips out volatile food and energy prices, held steady at 1%. Before April, prices had not fallen on an annual basis since 1960.

Meanwhile, the unemployment rate slid to 5.4%, a new post-crisis low. In the three months to August employment rose by 140,000, lifting the number of people in work to 31.1 million, the highest since records began in 1971.

What the commentators said

The benign version stems from falling energy and food prices, which give households a boost and help boost demand. And this, luckily, is the one we're seeing now. Lower prices are putting more money in people's pockets, especially because they are being accompanied by strong wage growth as the labour market tightens. Pay growth excluding bonuses has eased slightly from last month's six-year high of 2.9%; with bonuses, it is expanding by 3% a year.

The "substantial increases in real household earnings [are] supporting consumer confidence and should help boost consumer spending growth", said ING's James Knightley. Consumption accounts for around 60% of GDP. Given the solid outlook for demand, pay and growth, "market expectations of the first Bank of England rate rise being more than a year away seems too cautious".

Recommended

House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021
1 April 1999: The minimum wage is introduced in Britain
This day in history

1 April 1999: The minimum wage is introduced in Britain

On this day in 1999, the national minimum wage was introduced in Britain, bringing an instant pay rise to 1.9 million low-paid workers.
1 Apr 2021
How the vaccine wars will harm us all
Global Economy

How the vaccine wars will harm us all

Grabbing and hoarding vaccine supplies, or even manufacturing one’s own, might seem to make sense for a state in an emergency. But the damage done to …
27 Mar 2021
House price rise slows – but not by much
House prices

House price rise slows – but not by much

The rate of increase in UK house prices slowed in the year to January. But nothing seems able to halt their determined march higher, says Nicole Garci…
26 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Four investment trusts for income investors to buy now
Investment trusts

Four investment trusts for income investors to buy now

Some high-yielding listed lending funds have come through the crisis with flying colours. David Stevenson picks four of the best.
12 Apr 2021
Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021