Inflation below government target

Posted: 14 Aug 2007 11:52:00 GMT

The latest inflation figure shows that the Bank of England may not need to increase the base rate of interest as soon as had been feared.

The latest inflation figure shows that the Bank of England may not need to increase the base rate of interest as soon as had been feared.

The Bank recently released its quarterly inflation report in which it was made clear that further rate rises are likely in order to bring inflation under control.

However, the latest figures show that consumer price index (CPI) annual inflation has dropped below the government target of two per cent.

The news has shocked many analysts, the majority of whom had predicted that inflation would remain above two per cent and the base rate would have to rise accordingly.

"Having surprised on the upside last month, there was a much bigger downside surprise for inflation this month," commented Ian Kernohan, economist at Royal London Asset Management.

"Although the MPC [Monetary Policy Committee] focus on future inflation rather than today's rate, the fact that CPI has come in well below their expectations must put some question mark over a move to six per cent interest rates."

It is good news for mortgage holders and may help sellers too, as first-time buyers may feel more confident entering the market.

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