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Home / World News / UK inflation slumps to lowest since 2016 as coronavirus hits

UK inflation slumps to lowest since 2016 as coronavirus hits

Consumer price inflation dropped to an annual rate of 0.8 per cent from 1.5 per cent in March, official data showed on Wednesday.

world Updated: May 20, 2020 14:36 IST
Reuters | Posted by: Shivani Kumar
Reuters | Posted by: Shivani Kumar
London, United Kingdom
Markets see a chance the BoE could cut interest rates below zero for the first time by the end of the year.
Markets see a chance the BoE could cut interest rates below zero for the first time by the end of the year.(Reuters)

Britain’s inflation rate sank in April to its lowest since August 2016 as the coronavirus pandemic pushed down global oil prices and clothing stores slashed prices, bolstering the prospect of more Bank of England stimulus next month.

Consumer price inflation dropped to an annual rate of 0.8 per cent from 1.5 per cent in March, official data showed on Wednesday. That was the sharpest one-month fall in over a decade and took inflation further below the BoE’s 2 per cent target. Deputy Governor Ben Broadbent has said it could drop below zero by the end of 2020.

The BoE increased its bond-buying programme by a record 200 billion pounds in March as the per cent crisis escalated, and many economists expect another increase on June 18.

Markets see a chance the BoE could cut interest rates below zero for the first time by the end of the year.

Ruth Gregory, an economist with Capital Economics, said underlying price growth would stay subdued as weak demand more than offset any inflationary impact from the pandemic.

“Against this background, we expect the Bank to expand its quantitative easing programme further,” she said.

The Office for National Statistics says inflation readings were likely to be volatile because the coronavirus shutdown has kept its price-checkers from getting prices on more than a fifth of goods and services, forcing the ONS to estimate them or use substitutes.

Declining prices for energy bills, transport - which includes petrol - and clothing and footwear, causing biggest drop in inflation.

The ONS said clothing retailers, hit by the government’s stay-at-home orders, resorted to more discount sales and prices dropped by the most since 2010, down an annual 2.9 per cent.

Household utility bills dropped by the most since 2009, reflecting previously announced price caps.

But there was upward pressure from the price of video games and consoles, board games and children’s toys, as well as fresh vegetables, the ONS said.

Core inflation, which excludes energy, food, alcohol and tobacco, held broadly steady at an annual rate of 1.5 per cent.

Retail price inflation - an older measure which the ONS says is inaccurate, but is widely used in bond markets and for other commercial contracts - dropped to 1.5 per cent from 2.6 per cent.

The dip in the CPI below 1 per cent will require BoE Governor Andrew Bailey to explain to the government how the central bank will attempt to push it back up.

ht epaper

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