The latest inflation figure has shown a slight uptick in prices from -0.1% in October to +0.1% in November, largely due to fuel prices falling less this year than in November 2014.
Petrol prices fell by 1.5 pence per litre this year compared with a 3.0 pence per litre fall a year ago. Consumer price inflation remains stable, locked in a very narrow range of between 0.1% and +0.1% since February.
Maike Currie, associate investment director, Fidelity International, said: “Today’s move into positive territory is likely to be short-lived with the massive fall in oil prices and the supermarket discount wars likely to keep a lid on UK inflation as we head into 2016. I expect UK CPI to continue see-sawing around the zero-mark for the near future.
“Deflation is a double-edged sword which can have wreak economic havoc but can also kick start regenerative economic forces. The positive side effects of deflation as manifested in fuel in food prices is that it provides a boost to real incomes. In both the US and UK, falling prices coupled with a strengthening labour market, resulting in job and wage growth, raises real incomes.
“Persistently weak UK inflation means there is little incentive for the Bank of England to raise interest rates. I don’t expect UK interest rates to rise in 2016, and the pace of future rises is likely to be a lot slower too. On the basis of the Bank’s own projections, the most we can hope for are two quarter point hikes in 2017, which means interest rates may be just 1% a decade after the start of the financial crisis.”
