Financial News

Tuesday May 19, 10:47 AM
UK retail inflation falls to minus 1.2%

LONDON (AFP) - Britain's annual retail price inflation rate fell to a record minus 1.2 percent in April from minus 0.4 percent in March due to falling home loan payments, official data showed Tuesday.

"There was a large downward pressure from housing where the largest effect came from mortgage interest payments following March's half-point decrease in the bank rate from 1.0 percent to 0.5 percent," the Office for National Statistics (ONS) said in a statement.

The Bank of England has now slashed British interest rates six times since October to the current record-low of 0.5 percent as it seeks to fight a deepening recession.

That has weighed on the Retail Prices Index (RPI) inflation rate, which includes the cost of home loans.

The RPI rate had turned negative in March for the first time in almost 50 years. In April, it sank below the all-time low of minus 0.8 percent that was recorded in June 1959.

The data sparked renewed fears of deflation, which is the term for a prolonged period of falling consumer prices.

However, for deflation to take place, inflation as measured by the consumer price index (CPI (NYSE: CPY - news) ) would have to be negative for a number of months.

"The headline-grabbing figure is the widening in the year-on-year drop in retail prices to a record 1.2 percent in April," said IHS Global Insight economist Howard Archer.

"However, this is really artificial deflation, as it is very much the consequence of sharply lower mortgage interest payments."

The ONS said Tuesday that British 12-month consumer price inflation (CPI) slowed to 2.3 percent in April due to lower costs for housing and household services.

That was the lowest reading since January and compared with 2.9 percent in March. However, the measure does not include mortgage costs.

"This was principally due to electricity and gas bills which fell this year but rose a year ago. Also housing rents and water and sewerage charges rose by less than a year ago," the ONS added.