Inflation rate drops below government target

The inflation rate in the UK has fallen below the government target, raising hopes that there will be no need for further interest rate rises.

The inflation rate fell to 1.9% in July, compared to the June level of 2.4%.

This is the first time the inflation rate has fallen below the government target of 2% for over 16 months.

While analysts did not expect the fall in inflation, they welcomed the figures. Howard Archer, chief UK and European economist at Global Insight, said: "This is a massive surprise.

"Inflation fell back more than anyone was expecting, including, we strongly suspect, the Bank of England.

"This will boost expectations that interest rates have peaked at 5.75%, especially as the current turmoil in global financial markets further dilutes the case for higher interest rates."

James Knightly, economist for ING, agreed. He said: "The Bank of England continues to believe that corporate pricing power remains firm. Overall though, a September interest rate hike looks a lot less likely."

The Bank of England has increased interest rates five times in the last year, to 5.75%. Last week it suggested that one more rate rise may be needed to rein in inflation.

However, this now seems much less likely.

« back to development finance news