World Economy

UK Inflation Back to Zero

UK Inflation Back to ZeroUK Inflation Back to Zero

The falling price of clothes and food meant Britain’s consumer price index fell back to zero last month, from a 0.1% increase in May and in line with economists’ expectations.

Clothing and footwear prices fell by 0.4% in the month to June while food prices slipped 0.2% during the same period. Downward pressure also came from transport prices that saw smaller rises in airfares than a year ago–increasing 0.2%.

Low inflation is a boon for British households because it increases their spending power, and Bank of England officials such as Mark Carney have repeatedly stressed that it will benefit the British economy, BBC reported.

But there are signs that the Bank of England’s monetary policy committee could become split over when to hike interest rates from their historic low 0.5%. Martin Weale, one of two MPC members who dropped their calls for a hike amid falling inflation in January, recently said the bank could hike the cost of borrowing as early as August.

MPC members have to square low inflation with a strong jobs market, as well as wage growth.

Official figures out on Wednesday are expected to show that the labor market continues to improve, but at a reduced rate compared to earlier in the year. At the same time, economists think wages grew at their fastest pace in around five years, rising 3.3% in the three months to May.

“Inflation is back to square zero as the supermarket price war and summer clothes sales continue to weigh on prices,” said Ben Brettell, senior economist at Hargreaves Lansdown. “There is clear daylight between wage growth and inflation, putting more money in the pocket of consumers, who have faced tight household budgets since the financial crisis took hold. Continued low inflation probably means more pain for savers though, because the Bank of England is under no pressure to raise interest rates in the immediate future.”

  Productivity Plan

Chancellor George Osborne has produced a “productivity plan” to “fix the foundations of the British economy” which includes a Digital Transformation Plan.

According to Osborne, the Digital Transformation Plan will support the adoption of digital technologies across the economy.

The chancellor has included a “world-class digital infrastructure” in the Fixing the Foundations: Creating a More Prosperous Nation report; this entails making it easier the market to rollout fixed and mobile infrastructure with proposals to reform planning rules on taller masts.

The UK’s ambition to ensure 95% of home and business premises in the country are equipped with superfast broadband, speeds of at least 24 Mbps, by 2017 also falls under the productivity plan.

The document also says that the market will be supported to deliver near universal 46 and ultrafast (at least 100 Mbps) broadband coverage.

“The UK’s digital economy is vibrant and growing rapidly. To ensure these benefits are felt through the whole economy, the government will publish a Digital Transformation Plan by autumn 2015 that sets out concrete actions the government will take to support the adoption of digital technologies across the economy and the ways in which the government will assist in tackling barriers to new businesses entering and creating new markets,” the report claims.

  Keeping the Market Open

Besides this, Fixing the Foundations claims that the government is continuing its commitment to opening the market to new and alternative providers.

“By reducing the regulatory red tape and barriers to investment, the government will support the market to deliver the internationally competitive fixed and mobile digital communications infrastructure the UK’s businesses needs to thrive and grow, which will enable the UK to remain at the forefront of the digital economy,” it says.

The productivity plan also places emphasis on high-quality science and innovation and spreading new ideas fast.

The government will be looking for opportunities to develop the UK’s network of Catapult centers for commercializing technology.