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UK inflation drops to 0%

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The UK saw CPI inflation drop to 0 per cent for June, down from 0.1 per cent in May but hovering just above deflation.

The 12-month rate of 0 per cent shows that prices remained unchanged from the same month a year ago, according to Office for National Statistics figures. A drop in clothing and food prices led to the month-on-month fall, as well as a slight reduction in air travel prices.

The June figures are good news for UK people in light of improving earnings growth and higher employment, meaning purchasing power is “currently in rude health”, says Howard Archer, chief UK and European economist at IHS Global Insight.

Ian Stewart, chief economist at Deloitte, agrees, adding that Britain will see solid growth.

He says: “With inflation close to its lowest ever levels and earnings rising at the fastest rate in seven years, the scene is set for an acceleration in UK consumer spending. Low inflation, cheap money and a strong jobs market suggest that the UK should continue to post decent growth, despite Grexit risks.”

Core inflation, which strips out more volatile aspects of CPI, also dropped to 0.8 per cent, matching April’s 14-year low.

Archer says: “We doubt that deflation will recur in the UK, although it cannot be completely ruled out if oil prices fall markedly.

“Oil prices actually peaked in June 2014 so the year-on-year drops in oil prices have likely peaked.”

September will see a steady pick-up in inflation, predicts Archer.

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