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The UK Has Escaped Deflation

The UK Has Escaped Deflation

After a short encounter with deflation for the first time in 55 years, the UK has climbed back into inflation at the end of May. The change is largely attributable to the transport services. Notably, air fares within Easter and April are likely factor in the movement. Food and Fuel prices are also likely to have had an impact.

The Consumer Index Price (CPI) rose by 0.1 percent on average in May, compared with a 0.1 percent fall in the year to April according to the Office for National Statistics.

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(Source: Office for National Statistics)

Philip Gooding of the Office for National Statistics has since commented that the falls in food and fuel costs over the last year have eased this month which helped to push inflation up. The Chancellor, George Osborne attributed the rise to the Conservative ‘long-term economic plan’. But Ian Steward, the chief economist at Deloitte highlighted that core inflation, without volatile energy and food prices, remains close to a 15 year low at only 0.9 percent. This indicates that underlying price pressures have not shifted.

He commented that this means that the Bank of England can afford to withhold raising interest rates for now. Because UK consumers will continue to benefit from the very weak price pressures and ultra-low interest for some time yet.

The index is likely to remain at close to zero, or indeed drop to zero within the next few months. Inflation remains well below the 2 percent target of Bank of England which remains positive about achieving 1.7 percent by the end of the year.

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