Belfast Telegraph

UK Website Of The Year

Inflation expected to increase to 0.4% amid rising oil prices

Published 08/04/2016

The Consumer Price Index measure of inflation is expected to increase
The Consumer Price Index measure of inflation is expected to increase

Inflation is expected to edge up to 0.4% when official figures for March are released on Tuesday, as the rising oil price pushes up the cost of living.

The Consumer Price Index (CPI) measure of inflation is predicted to step up after Brent crude achieved stronger growth last month than in March 2015.

Inflation remained at 0.3% in February - the same as the month before - as the falling cost of second-hand cars was offset by rising food prices, according to official figures.

The Office for National Statistics (ONS) said the price of second-hand cars dropped by 5.6% year-on-year in February, while the fall in price of food was smaller than it was in January , down 2.4% year-on-year.

Sharply lower oil prices have kept inflation historically low, with the Bank of England predicting it to stay far beneath the Government's target for some time.

Last month the central bank voted to keep rates on hold again and warned that Britain's vote on its European Union membership could hit UK economic growth.

Since then, the picture for the UK economy has worsened, with a series of surveys covering the manufacturing, construction and services sectors pointing to a slowdown in gross domestic product.

Economists predict that GDP will hit 0.4% in the first quarter of this year, down from 0.6% in the fourth quarter of 2015.

Concerns have also been mounting that the UK economy could be left exposed if Britain leaves the EU after its current account gap hit a record high in the fourth quarter.

The ONS revealed last month that the UK current account deficit ballooned to £32.7 billion or 7% of GDP, fuelling fears that Brexit could reduce the flow of foreign money into the UK economy and make the deficit harder to sustain.

Howard Archer, chief UK and European economist at IHS Global Insight, said CPI could even hit 0.5%, driven by a strengthening in the oil price and the impact of an earlier Easter.

He said Brent oil prices averaged 38.5 US dollars a barrel in March, up from February's average of 32.5 US dollars a barrel.

He added: "T he earlier Easter in 2016 means that the seasonal rise in air and sea transport prices as well as in hotel prices will have occurred largely in March this year as opposed to largely in April in 2015."

Experts at Oxford Economics said it expects inflation to notch up to 0.4%, adding that "there have been tentative signs that deflationary pressures coming along the supply chain are starting to ease."

Read More

From Belfast Telegraph