- Rob Wood, chief U.K. economist at Berenberg Bank
Britain's inflation rate fell further in September as declining oil prices and a stronger local currency lowered imports costs, reinforcing the view the Bank of England will maintain interest rates at 320-year low for now. The cost of living slid to 1.2% down from 1.5% in August, according to the Office for National Statistics. That is the lowest level since September 2009 and compared with market consensus of a 1.4% reading. Food prices dropped 1.5% from September last year, while fuel prices plunged by 6%. The fight for market share between leading supermarkets is intensifying and the downward pressure on food prices is seen to continue to weigh on inflation. Core inflation, which strips out volatile elements, also fell to a five-year trough. Inflation has been below the central bank's target of 2% for nine months, while until December last year annual consumer price inflation had been exceeding the BoE's goal every month since December 2009. The UK's central bank has said it projects inflation to hit its target of 2% only in around three years' time, whereas some analysts have estimated that it could fall close to 1% soon.
On the back of worse than expected inflation data, the Pound weakened as much as 0.7% versus the US Dollar as investors added to bets that the Old Lady of Threadneedle Street might start to raise interest rates only in the mid-2015.
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