UK October inflation falls

Bloomberg

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Consumer prices rose 4.5 percent from a year earlier, compared with 5.2 percent the previous month, the Office for National Statistics said yesterday in London.

Central bank Governor Mervyn King said last week that the economy is probably in a recession, and policy makers will cut borrowing costs as low as needed to stave off deflation. The bank forecasts inflation will slow below the government's 1 percent lower limit unless it reduces the benchmark interest rate from the current 3 percent.

"Inflation will be back at the target by the middle of next year and may undershoot in the second half," said Ross Walker, an economist at Royal Bank of Scotland Group in London. "There are more interest-rate cuts to come."

Consumer prices fell 0.2 percent on the month, the first decline for October since 2001, the statistics office said. Lower oil, transport, and food costs pushed the inflation rate down by 0.7 percent, the biggest drop since records began in 1997.Slower growth is sparking concerns of deflation. U.K. manufacturers' raw material costs and output prices fell at the fastest pace in 22 years in October, and the central bank's forecasts show the economy contracting through most of next year.