Rate of inflation falls

Greater Manchester Chamber of Commerce’s Chief Economist, Dr John Ashcroft

The rate of inflation slowed to 2.7% in August compared to 2.8% in July.

Dr John Ashcroft, Chief Economist at Greater Manchester Chamber of Commerce, said: "We expect a further significant fall next month. By the end of the year the inflation rate should be around 2.4%. Thereafter prices could be a little sticky. Service sector inflation was 3% in August and goods inflation was 2.4% in the latest monthly data.

"The good news on inflation was also manifest in the manufacturing sector. Output prices increased by just 1.6% compared to 2.1% in July. Input costs for manufacturers also fell back from 5% in July to 2.8%.

"Part of the reason for the slow down was oil and energy costs. The average price of oil in August was $111 dollars per barrel, slightly down on the same period last year. The rate of wages and earnings growth also remains subdued, presenting a benign outlook for inflation over the short term.

"For those wary of a housing boom, the ONS also released the House Price Index in July. In the 12 months to July 2013 UK house prices increased by 3.3%, up from a 3.1% increase in the 12 months to June 2013. Signs of a national boom? Not really!

"Annual house price increases in England were driven by London (9.7%) and the South East (2.6%). Excluding London and the South East, UK house prices increased by just 0.8%. In the North West, prices actually fell by almost 1%.

"The RICS has made the call for a peg on prices around 5%. This to reflect a normalised earnings growth rate of 3% plus a supply side restraint adjustment to stimulate additional investment presumably.

"Would this work nationally? Obviously not. But some consideration to mortgage rationing on a regional basis especially in the South East may gain political if not market traction.

"Overall, the recovery in the economy will continue into the final quarter of the year and next, with no need to worry about an inflation knock out to the Bank of England, low rate commitments on forward guidance and base rates. Who ever said economics was a dismal science?"