UK Inflation Drops During August

The inflation rates in the United Kingdom dropped unexpectedly in August, suggesting that the Bank of England was likely in no rush to increase interest rates even though the economy was still growing, showed official data on Tuesday.

The annual inflation rated dropped from 1.6% during July to 1.5% for August, said the Office for National Statistics. The rate is equal to the rate during May, which was the lowest rate since October of 2009.

Economists in the UK expected the rate of inflation to remain in August the same as it was in July. The inflation rate has maintained below the 2% target for the Bank of England each month in 2014.

In a sign little inflationary pressure is in the pipeline, factory gate prices were 0.3% lower in August on the year.

Companies’ costs for raw material or its input producer prices on the year were lower by 7.2%.

Mark Carney the Governor of the Bank of England signaled early last week that the benchmark rates likely would rise during early 2015. However, two Monetary Policy Committee members voted last month to increase the rate from 0.5%, which has not been changed since March of 2009.

Carney during a speech to members of the labor union in Liverpool said the rate of increases in wages over the coming months will be a key to the timing of the bank’s first move to increase the benchmark rate and assured it would be limited and gradual.

The Central Bank’s governor said the economic recovery in the UK has exceeded expectations and contains momentum.

Against that comment, he said the time for which to normalize interest rates is approaching.

Should the bank raise the interest rate in the beginning of next year, the BOE likely would be the first major bank to begin removing the levels that are unprecedented of stimulus provided to their economy since late 2008 when the financial crisis first hit.

The Federal Reserve Bank in the U.S. is expected to begin to increase its benchmark rate sometime later during 2015.

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