Deflation Puts Off Interest Rate Rise

A deflationary environment in the UK may provide a boost to real returns, but lack of inflation means no interest rate rise for savers

Emma Wall 13 October, 2015 | 12:13PM

UK inflation turned negative again in September, the Office of National Statistics has revealed. This may seem like good news for savers and investors – who now have a lower benchmark to beat in order to secure a real rate of return – but the news that the UK is in a deflationary environments puts off any interest rate rise.

Data from the ONS showed that consumer prices dropped 0.1% year-on-year in September, after staying flat in August. Economists had expected prices to remain flat. Consumer prices last declined in April.

“The usual suspect of falling fuel costs, coupled with smaller-than-usual increases in clothing prices pushed the UK inflation rate back into negative territory in September, once again putting no pressure on the Bank of England to lift interest rates,” said Ben Brettell, Senior Economist at Hargreaves Lansdown.

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Emma Wall  is former Senior International Editor for Morningstar

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