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Inflation holds steady

18/12/2007

The official rate of inflation remained unchanged at 2.1 per cent in November, despite higher fuel costs, it has been revealed.

Some analysts had expected the consumer prices index (CPI) – the government's preferred measure of inflation – to show a rise, but lower utility bills helped offset soaring petrol prices.

Economists say the fact inflation remained unchanged from October's level will leave the Bank of England with the scope to cut interest rates again if the economy shows further signs of weakening.

Earlier this month, the UK's central bank cut the country's benchmark interest rate by a quarter-point to 5.5 per cent, with concerns about the economy outweighing inflation fears among monetary policymakers.

But in a statement accompanying the December 6th decision, the Bank stressed "upside risks" to inflation remained and said its monetary policy committee (MPC) would continue to monitor the situation carefully.

Today's inflation data from the Office for National Statistics (ONS) stressed the largest upward pressure on prices came from the rising cost of road fuels in November.

Average petrol prices rose by 3.5p per litre over the month to reach over £1 per litre, compared to a fall of 0.4p per litre last year, the ONS stressed.

Diesel prices were also up by 5p per litre, compared to a similar 0.4 per cent fall last November, while the higher cost of heating oil also exerted some upward pressure on inflation.

However largely unchanged gas and electricity prices, compared with higher bills last year, helped keep inflation down.

Commenting on the figures, Global Insight chief economist Howard Archer said: "November's lower than-expected inflation data keeps the door open for another interest rate cut early in 2008.

"Nevertheless, significant price risks persist and inflation still seems set to rise further over the coming months, so much will depend on to what extent economic activity appears to be slowing, whether or not pay moderation continues in the early 2008 wage rounds, and whether companies' pricing power appears to be waning," he warned.

Meanwhile the retail price index (RPI) – another measure of inflation upon which many wage deals are based – unexpectedly rose from 4.2 per cent in October to 4.3 per cent in November.