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U.K. August Inflation Falls Slightly As Expected

U.K. August Inflation Falls Slightly As Expected

U.K. inflation slowed marginally in August despite an increase in fuel prices, which may provide room for more monetary policy easing. Nonetheless, inflation remains above the 2 percent target.

Annual inflation eased to 2.5 percent in August, in line with expectations, from 2.6 percent in July, data from the Office for National Statistics revealed Tuesday.

With the exception of the June 2012 inflation figure of 2.4 percent, this was the lowest rate of annual inflation since November 2009.

The increase in petrol prices was offset by decreases in prices for clothing and footwear, furniture and household services. The slowdown in inflation is likely to boost spending of consumers.

The annual core inflation rate, excluding energy, food, alcoholic beverages and tobacco, fell to 2.1 percent from 2.3 percent in July. Core inflation also matched economists' expectations.

Month-on-month, the consumer price index climbed at a pace of 0.5 percent, following a 0.1 percent rise in July. The rise this year is within the normal range for a July to August movement, the ONS said.

Retail price inflation slowed more-than-expected in August, to 2.9 percent from 3.2 percent in July. The expected rate for August was 3.1 percent. Likewise, the retail price index, excluding mortgage interest payments, rose 2.9 percent, slower than 3.2 percent in July.

The economy entered a double-dip recession in the first quarter and further shrank 0.5 percent in the second quarter. The Bank of England expects economic growth to be around 2 percent in two years.

Weak economic activity going forward is set to weigh on consumer price growth. Britons' inflation expectations' for the coming year fell to 3.2 percent from 3.7 percent in May, according to a survey conducted by research firm GfK NOP and Bank of England.

According to central bank, inflation will be near 1.7 percent in two years time. Early this month, the central bank maintained its quantitative easing programme at GBP 375 billion and the interest rate unchanged at 0.50 percent.

IHS Global Insight's economist Howard Archer said he strongly suspects a further GBP 50 billion of QE in the fourth quarter, taking the stock up to GBP 425 billion.

by RTT Staff Writer

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