Coronavirus: UK inflation reaches 1.5% as social distancing is established

The UK inflation rate fell to 1.5% in March, largely driven by declines in the price of clothing and fuel before the coronavirus blockade.

The Consumer Price Index (CPI) fell from 1.7% in February, according to the Office for National Statistics (ONS).

Clothing stores had offered more discounts as shoppers started staying home, he said. The drop in oil prices also resulted in cheaper gasoline prices.

Economists warn that inflation could drop to 0.5% in 2020 as the economy contracts.

The latest ONS data was collected on March 17, just before the blockade began on March 23. But his head of inflation, Mike Hardie, said there were already signs that people spent less on stores and more on necessities like food.

The agency said the average price of clothing and shoes fell 1.2% in the year to March 2020.

He also said that average gasoline prices remained at 119.4 pence per liter during the month, the lowest seen since February 2019, while diesel stood at 123.8p.

The UK benchmark index for oil fell to around $ 16 (£ 13) a barrel as economic activity slowed. That’s a drop of about 75% from the start of the year.

Sarah Hewin, a senior economist at Standard Chartered Bank, told the BBC Today program: “Low inflation would normally be appreciated as it means that people have a lot more to spend at the store, but these are not normal circumstances.

“The drop in inflation, in addition to low energy prices, is an indication of the sharp recession that we will see in the coming months.”

Meanwhile, Andrew Wishart of Capital Economics said: “We suspect that a further drop in CPI inflation, from 1.5% to 0.9%, is planned for April as Ofgem [the regulator] reduces the cap on utility bills to reflect past declines in wholesale energy prices. ”

He added that declining employment, consumer caution and lower energy prices would reduce inflation “to just 0.5% in the second half of this year.”

‘More help is needed’

The CPI remains below the Bank of England’s 2% inflation target.

Inflation is one of the main factors that the Bank of England’s Monetary Policy Committee (MPC) considers when establishing the “base rate”. That influences the interest rate that banks can charge people for borrowing money, or what they pay for their savings.

Last month it made the decision to cut interest rates in an emergency move as it tries to support the UK economy in the face of the coronavirus pandemic.

The UK central bank reduced them to 0.1% from 0.25%. Interest rates are now the lowest in the Bank’s 325-year history.

The Bank said it would also increase its holdings of UK government and corporate bonds by £ 200 billion in an effort to reduce the cost of borrowing.

But Melissa Davies, chief economist at Redburn, said the Bank must go further: “It will be a volatile trip for inflation over the next year, with negative numbers as a possibility followed by a sharp reversal.”

He added: “More stimulus is needed, with limited help from the Bank of England’s quantitative easing and the Treasury loan guarantee scheme is falling short. Even the licensing scheme is only delaying an inevitable and large increase in unemployment.” .

What do I need to know about the coronavirus?