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UK recession eases inflation
By Svenja O'Donnell |
January 21, 2009, Wednesday
|
Print Edition
Print Edition
THE United Kingdom's inflation rate fell less than economists forecast to the lowest since April as tax cuts and the deepening recession eased price pressures across the economy.
Consumer prices rose 3.1 percent from a year earlier in December, compared with 4.1 percent the previous month, the Office for National Statistics said yesterday in London. The median forecast in a survey of 33 economists conducted by Bloomberg News was 2.6 percent. The 1-percentage-point drop was the biggest since at least 1997.
The pound fell to a record against the yen and a six-year low versus the dollar yesterday after the government unveiled its second rescue package for the banking system as the recession intensified. The Bank of England won unprecedented powers on Monday to buy assets, providing a new policy tool as interest rates approach zero and the threat of deflation looms.
"In the next couple of months the consumer price index will come down very sharply indeed and it will allow the bank to cut rates," said Trevor Williams, chief economist at Lloyds TSB Group Plc in London. "There will certainly be further easing. As interest rates approach zero, you have to put in place other measures to boost liquidity."
The pound was little changed at US$1.3972 as of 9:40am yesterday in London, after dropping below US$1.40 for the first time since 2001. The currency reached an all-time low of 126.66 yen (US$1.40) yesterday and had the biggest drop against the euro in a month.
The government's 2.5-percentage-point cut in value-added tax, part of a package to boost the economy, weighed down on inflation in December, the statistics office said. Two-thirds of goods in stores carried through the reduction, as did most items on the Internet. Stores cut prices to boost sales and attract shoppers in the holiday season.
Bank of England Deputy Governor John Gieve said last week that inflation will continue to slow this year as the economy endures its "sharpest fall in output for decades."
Consumer prices rose 3.1 percent from a year earlier in December, compared with 4.1 percent the previous month, the Office for National Statistics said yesterday in London. The median forecast in a survey of 33 economists conducted by Bloomberg News was 2.6 percent. The 1-percentage-point drop was the biggest since at least 1997.
The pound fell to a record against the yen and a six-year low versus the dollar yesterday after the government unveiled its second rescue package for the banking system as the recession intensified. The Bank of England won unprecedented powers on Monday to buy assets, providing a new policy tool as interest rates approach zero and the threat of deflation looms.
"In the next couple of months the consumer price index will come down very sharply indeed and it will allow the bank to cut rates," said Trevor Williams, chief economist at Lloyds TSB Group Plc in London. "There will certainly be further easing. As interest rates approach zero, you have to put in place other measures to boost liquidity."
The pound was little changed at US$1.3972 as of 9:40am yesterday in London, after dropping below US$1.40 for the first time since 2001. The currency reached an all-time low of 126.66 yen (US$1.40) yesterday and had the biggest drop against the euro in a month.
The government's 2.5-percentage-point cut in value-added tax, part of a package to boost the economy, weighed down on inflation in December, the statistics office said. Two-thirds of goods in stores carried through the reduction, as did most items on the Internet. Stores cut prices to boost sales and attract shoppers in the holiday season.
Bank of England Deputy Governor John Gieve said last week that inflation will continue to slow this year as the economy endures its "sharpest fall in output for decades."
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