UK Inflation Rises to 1.3%

Inflation in the United Kingdom rose to 1.3% in October of last year as it moved above its recent five year low.

It was only a slight increase that saw inflation move from 1.2% to 1.3%, as measured by the Consumer Prices Index (CPI), but even the smallest rise was welcomed after the Bank of England warned that the rate of inflation could drop dramatically within the next six months.

The Office for National Statistics (ONS) claimed that the source of the rise was because, although transport costs fell, it was by less than they had at the same point last year. Prices in certain recreation and culture products also rose as computer games and toys had the greatest impact.

This was tempered however by the fall in prices of food and non-alcoholic beverages which dropped by 1.4% in October compared to the same time last year. This is the sixth month in a row without a rise in this area which is the longest such period since the year 2000. Another area that also saw a drop in pricing was furniture and household equipment that fell by 1.1%.

Despite falling prices in these areas, UK grocery sales have also fallen for the first time in twenty years. With price competition pushing down grocery prices by 0.4%, the ONS said that the Retail Price Index grew by 2.3% in the year to the end of October, the same rate as recorded for September. The value of sales fell by 0.2% for the 12 weeks to 9 November compared with the same period last year in the grocery sector.

As the Bank of England had previously warned about the drop off in inflation, the key interest rate is currently set at 0.5% and this marginal rise is unlikely to do much to alter their current stance with a target inflation rate of 2% firmly set in mind.

It has been argued that this latest rise is actually largely down to seasonal factors with it coming in line with the timing of a student fees increase and the sales of Christmas games and products. David Kern, chief economist at the British Chambers of Commerce said, in response to these latest figures:

“The impact of low oil prices will have a noticeable impact in coming months, causing inflation to drop. We expect inflation to fluctuate around 1% until late 2015, before rising towards 2.0% in 2016.”

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