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UK inflation slows more than expected in Sept to 1.2%

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British inflation slowed sharply in September to its lowest level in five years, further easing pressure on the Bank of England to start raising record low interest rates even as the economy grows strongly. - PHOTO: AFP

[London] British inflation slowed sharply in September to its lowest level in five years, further easing pressure on the Bank of England to start raising record low interest rates even as the economy grows strongly.

Consumer prices rose 1.2 per cent on the year in September, compared with 1.5 per cent in August as the prices of food and motor fuels both fell, the Office for National Statistics said.

Economists taking part in a Reuters poll had expected inflation to fall to 1.4 per cent.

Compared with the previous month, the consumer price index was unchanged, the ONS said.

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The numbers, combined with falling prices at the factory gate, are likely to add to expectations that the BoE will keep interest rates on hold possibly until mid-2015.

The Bank's governor, Mark Carney, said last month that the central bank may start to raise interest rates next spring if the labour market continues to recover from the financial crisis.

But since then, signs have grown that the euro zone is at risk of falling into a new recession, hurting demand in Britain's manufacturing sector in particular.

And wage growth remains depressed in Britain, meaning little pressure on prices. ONS data on Wednesday is expected to show that average weekly earnings rose just 0.7 per cent in the three months to August compared with same period of last year.

Separate data from the ONS on Tuesday showed house prices in Britain rose 11.7 per cent in yearly terms in August, unchanged from the increase in July.

Other, more up-to-date surveys have shown that the rapid pace of house price growth has started to cool.

In London, property prices picked up speed in August, rising 19.6 per cent compared with a year ago, up from 19.1 per cent in July.

Until December last year, annual consumer price inflation exceeded the BoE's 2 per cent target every month since December 2009, eroding the spending power of households and making the fall in living standards a big political issue ahead of next year's national election.

The ONS said the biggest negative contributions to inflation in September were from transport, recreation and culture and restaurants and hotels.

Food prices fell 1.5 per cent compared with September last year as big supermarket chains competed to win customers. Fuel prices fell by 6 percent, helped by lower crude oil prices and the strengthening of sterling.

The BoE has said it expects inflation to hit its target of 2 per cent only in around three years' time and some economists have said it could dip close to 1 per cent in the coming months, helped by the strength of sterling which lowers the price of imports.

Carney said in a television interview broadcast on Monday that the BoE would take into account the fact that weaker global demand was producing a "very benign global inflationary environment".

An underlying measure of British inflation, which strips out increases in energy, food, alcohol and tobacco, rose by a yearly 1.5 per cent last month, slowing from 1.9 per cent in August.

Data also released by the ONS on Tuesday showed that factory gate prices fell by 0.4 per cent in annual terms, the biggest yearly fall since September 2009. Economists had expected a 0.3 per cent decline. REUTERS

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