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Sharp fall in UK inflation in October

Text by AFP

Latest update : 2008-11-18

Driven by lower oil and food prices, UK inflation fell sharply in October to 4.5%, according to official figures. This comes a day after British Prime Minister Gordon Brown warned of a risk of deflation in 2009, echoing the Bank of England.

British 12-month inflation fell more sharply than expected to 4.5 percent in October from a 16-year high point of 5.2 percent in September as oil prices weakened, official data showed on Tuesday.

Economists said that the drop in British inflation was likely to herald a period of deflation -- a protracted general fall in prices.

"Consumer Prices Index (CPI) annual inflation -- the government's target measure -- was 4.5 percent in October," the Office for National Statistics (ONS) said in a statement.

That marked the biggest fall in annual inflation since April 1992 and compared with analysts' consensus forecast for a drop to 4.8 percent, according to Dow Jones Newswires.

The ONS added on Tuesday that Britain's consumer prices index had fallen by 0.3 percent in October on a monthly basis from September. Analysts had forecast a modest rise of 0.1 percent.

"The largest downward pressure on the CPI annual rate came from transport costs where the price of fuels and lubricants fell this year but rose last year.

"The decrease this year was triggered by a sharp fall in the price of crude oil," the ONS said.

World oil prices have plunged by around two thirds in value since striking record highs above 147 dollars per barrel in July, as traders worried that a global economic slowdown would sap demand for energy.

Jonathan Loynes, chief European economist at the Capital Economics consultancy in London, said the British economy was on a deflationary path.

"October's sharp fall in UK CPI inflation from 5.2 percent to 4.5 percent is the first step along a road that is likely to end in the first bout of deflation in the UK economy in almost half a century," Loynes said.

"The drop was driven partly by falls in petrol and food prices and both will continue to exert strong downward pressure over the coming months."

The news came one day after Britain's Prime Minister Gordon Brown warned of a risk of deflation next year, echoing a recent similar prediction made by the Bank of England, whose target annual inflation rate stands at 2.0 percent.

Date created : 2008-11-18