U.K. inflation turned negative again in September and factory gate prices continued to decline strengthening the assessment that interest rates are unlikely to be raised anytime soon.
Consumer prices dropped 0.1 percent year-on-year in September, after staying flat in August, the Office for National Statistics reported Tuesday. Economists had expected prices to remain flat.
Deflation was last seen in April, when prices edged down 0.1 percent. It was the first annual fall in consumer prices since 1960.
Inflation has remained in the range of -0.1 percent to +0.1 percent since February.
The Bank of England last week said inflation was likely to remain close to zero before picking up around the turn of the year and will likely remain below 1 percent until Spring 2016.
These inflation figures mean that there is still very little pressure on the central bank to raise interest rates, Vicky Redwood, chief economist at Capital Economics, said.
IHS Global Insight Economist Howard Archer said, deflation is likely to prove brief and marginal and it is highly unlikely that consumers will be tempted to start delaying purchases in anticipation of falling prices.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, remained unchanged at 1 percent in September.
On a monthly basis, consumer prices slid 0.1 percent, confounding expectations for a flat reading.
The biggest downward impact on inflation came from clothing and footwear prices. Further, falling fuel prices hurt inflation. Retail price inflation fell to 0.8 percent in September from 1.1 percent in August.
Another report from the ONS showed that output prices declined 1.8 percent annually versus a 1.9 percent drop in August. Prices have been falling since July 2014.
Month-on-month, prices slid 0.1 percent. Both annual and monthly rates matched expectations.
Crude oil continued to drive down input prices, feeding through to a drop in output prices of petroleum products.
Input prices plunged 13.3 percent year-on-year after falling 14.6 percent in August. Prices were forecast to decrease 13 percent.
At the same time, input prices increased for the first time in five months in September. Prices climbed 0.6 percent, reversing a 3 percent drop in August. Economists had expected 0.3 percent increase.
Elsewhere, a report from the ONS showed that house prices increased at the slowest pace since September 2013. In the U.K., house prices advanced 5.2 percent year-on-year and London house prices gained 4.2 percent.
According to the Credit Conditions Survey of the BoE, released Tuesday, lenders expect availability of secured credit to households to increase in the fourth quarter. At the same time, the availability of credit to the corporate sector was expected to remain unchanged in the fourth quarter.
Banks said demand for secured lending for house purchase increased significantly in the third quarter and it is likely to remain unchanged in the fourth quarter.
Demand for corporate lending increased across all business sizes in the third quarter. Demand from large corporates was expected to be unchanged.
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