UK data shows inflation rates return to zero

UK inflation returned to zero in August, driven down by the cost of motor fuel and clothing.

A measure of core price pressures also eased.Consumer prices were unchanged compared with a year earlier following an annual 0.1 per cent gain in July, the Office for National Statistics said in London on Tuesday.

Core inflation - which excludes volatile food and energy costs - slowed to 1 pe cent from 1.2 per cent, also as predicted.

The figures may fuel expectations that the Bank of England is still months away from raising its benchmark rate from 0.5 per cent.

Minutes of the BOE’s policy decision this month show policy makers expect inflation to stay close to zero for a few months before picking up around the turn of the year.

While inflation remains well below the BOE's 2 per cent target and the slump in oil prices is creating uncertainty about the outlook, governor Mark Carney says the decision on when to raise rates will come into sharper focus around the turn of the year.

The pound rose after the data and was trading at $1.5449 as of 9:34 am, up 0.1 per cent from Monday.

Cheaper motor fuels, in particular diesel, had the biggest downward effect on inflation with prices falling 3 per cent compared with a 1.5 per cent decline a year earlier.

There was also pressure from sea fares and from clothing and footwear prices, which rose less last month than they did a year earlier.

Services inflation, a proxy for domestic price growth, slowed marginally to 2.3 per cent in August from a four-month high of 2.4 per cent in July.

Goods prices fell 2 per cent on the year. Separate figures showed the cost of goods leaving factory gates fell 0.4 per cent in August and were down 1.8 per cent lower than a year earlier.

Input prices declined 2.4 per cent on the month and by 13.8 per cent on the year. UK house-price inflation fell to 5.2 per cent in July, the slowest annual rate since September 2013. Prices in London rose 5.5 percent.

- Bloomberg