Europe Economy

UK economy falls into deflation in September

Prices for goods and services bought by households in the U.K. fell 0.1 percent in September from the same period last year, as clothing prices rose less than usual and motor fuel prices fell.

Headline consumer price inflation (CPI) came in below analysts expectations and well below the Bank of England's (BoE) target. It gives the central bank little added reason to raise interest rates in the near future.

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The BoE left interest rates on hold at a record low of 0.5 percent last week. Sub-1 percent inflation is likely to be a feature of the U.K. economy until at least spring 2016, the bank's Monetary Policy Committee admitted at the time. CPI inflation is now forecast to stay close to zero for the rest of the year by the committee. This is likely to delay the moment it first raises interest rates.

Economists and stock market traders increasingly believe that the bank will hold rates for longer than previously thought, especially since the U.S. Federal Reserve delayed a once much-anticipated rate rise in September.

"Deflation is likely to prove brief and marginal and it is highly unlikely that consumers will be tempted to start delaying purchases in anticipation of falling prices, Howard Archer, chief UK and European economist at IHS Global Insight said.

He added the the UK could very well exit deflation in October as oil prices have been firmer overall during the month so far.

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