Drilling further into the ONS data, we learn that producer price inflation, reflecting the costs of the inputs that firms use to provide the goods and services they sell us, was negative for the fourth successive month. Producer input prices were 2.6pc lower than last September, having dropped by 2.0pc the month before.
Falling input costs should help lower inflation as year-end approaches – suggesting the Bank’s monetary policy committee should hold interest rates at 5.25pc when it meets on Thursday week, just as it did at its last meeting in mid-September.
The UK’s money supply growth has also recently turned negative on the latest figures, for the first time since 2010. The monetary measure M4ex – including bank credit – contracted 0.6pc in August, with higher interest rates finally curtailing demand for borrowing by households and firms. That will also help temper inflation – another reason the MPC should hold fire.
The MPC has raised interest rates no less than 14 consecutive times – from 0.1pc in December 2021 to 5.25pc now. Those increases need time to feed through – and the money supply numbers show that they now are.
On top of that, the Ofgem energy price cap just fell from an annual rate of £2,704 to £1,923 between October and December for an average household’s combined gas and electricity bill – which will also bring headline inflation down.
Raising rates further – when GDP grew just 0.2pc in August, following a 0.6pc quarter-on-quarter fall in July – risks pushing a stalling economy into a wholly unnecessary recession. The MPC only just held rates when it last met, with the committee split by five votes to four. Next month’s decision to leave rates unchanged should be much more clear cut.
The Government borrowed £14.3bn last month, according to the ONS, significantly below the Office for Budget Responsibility’s £20.5bn forecast. So far this fiscal year, the state has increased debt by £81.7bn – again, far less than the OBR’s overly gloomy prediction.
