U.K. Inflation Rate Remains at 0.3%, Far Below BOE's Target

  • Statistics office says rate at `historically low levels'
  • Transport costs pushed down annual inflation in Feb.

The U.K.’s inflation rate was unexpectedly unchanged in February, remaining far below the Bank of England’s 2 percent goal.

Annual consumer-price growth was at 0.3 percent, the Office for National Statistics said in London on Tuesday. Economists had forecast an acceleration to 0.4 percent. Core inflation, which excludes volatile food and energy prices, held at 1.2 percent.

Inflation has been below the BOE’s target for more than two years, largely due to lower oil prices. With Governor Mark Carney warning about international risks to the U.K. economy, weak price growth is giving him leeway to keep interest rates at a record low. Pacific Investment Management Co. said its base case is for no U.K. rate increase this year, and it even sees a greater risk of a cut.

“There are still few signs of any inflationary pressures,” said Martin Beck, an economist at the EY Item Club in London. “Currently, it is difficult to identify any reason why there should be a material pickup in inflation, at least until the base effects from the collapse in the oil price at the end of 2015 start to take effect towards the end of this year.”

ONS statistician Phil Gooding said U.K. inflation remains around “historically low levels.” Prices posted annual declines in three months in 2015 and the rate hasn’t been higher than 0.3 percent since 2014. The biggest downward contribution in February came from transport costs, including bicycles and used cars.

On the month, consumer prices rose 0.2 percent in February, less than economists had forecast.

According to another inflation measure, the RPI, prices rose 1.3 percent last month compared with a year earlier, matching the median forecast in a Bloomberg survey. A separate report showed output prices at factories rose 0.1 percent in February from January and dropped 1.1 percent on the year.

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