UK inflation at 5 year low. Good news for low interest rates.
There was further good news today for the UK housing market as the Ba k of England's monthly inflation report showed that the rate of annual inflation had dropped to 0% in June from 0.1 % in May 2015.
The news will be welcomed by borrowers and the business community as this is pushes the liklihood of interest rate hikes further down the road. The low inflation figures were put down to a smaller rise in air fares in June and food prices being kept low by an ongoing battle of the supermarkets which is keeping prices lower. Other items such as tobacco, energy, and alchohol also saw prices fall which helped lower inflation.
Inflation likely to remain low over coming months
The other good news is that according to Mark Carney the rate of inflation is unlikely to change over the coming months. According to financial experts low inflation can be very good for consumers but can be harmful to business if it remains at 0% for a prolonged period of time. One of the reasons for this is that consumers may hold off spending money in the hope that goods may come down in price in the future.
The current target rate of inflation remains at 2%
The current rate of inflation has missed it's target of 2% that is set by the Chancellor of the Exchequer. He sets that rate of inflation and it is up to the Bank Of England to hit that target. The Governor of the Bank has to write to the Chancellor each month if he misses the targe explaining why the target has been missed.
The other very important statistic that the bank will be watching is wages growth. If wages growth starts to pick up they could consider raising rates in order to head off a steep rise in wages. HJigh wages growth is bad for employers and is bad for inflation.