UK Sept. Annual Inflation Lowest Since 2004

UK annual inflation slowed more than expected in September to a five-year low. Also, inflation stood below the central bank’s 2% target for the fourth straight month.

Annual inflation slowed to 1.1% in September from 1.6% in August, the Office for National Statistics reported Tuesday. This was the lowest annual rate since September 2004. Economists had expected the annual rate to ease to 1.3%. Month-on-month, consumer prices remained flat, the lowest monthly change since records began in 1996. Core annual inflation that strips out energy, food, alcohol and tobacco stood at 1.7%, down from 1.8% in August.

The largest downward contribution to the change in the CPI annual rate came from housing and household services, the ONS said. There were also large downward contributions from food and non-alcoholic beverages as well as restaurants and hotels. On the other hand, the largest upward contribution came from transport and clothing and footwear.

Further, the agency said the retail price index, which is used for indexation of pension and state benefits, stood at 215.3 in September, up from 214.4 in August. From August, the retail price index was up 0.4%.

Retail prices dropped 1.4% in September from the same period of last year compared to a 1.3% fall in August. Consensus forecast was for a 1.5% fall. Excluding mortgage interest payments, retail prices were up 1.3%, slower than the 1.4% growth seen in the prior month.

Overall results for the third quarter were encouraging. The survey found that confidence strengthened across the board in the third quarter. Domestic orders and sales also strengthened considerably, especially in manufacturing. However, they remain negative, making it difficult to argue that the UK has already emerged from recession. The cashflow indicator remained negative and still remain weak by historical standards.