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UK inflation rate returns to zero

The latest figures from the Office for National Statistics (ONS) show that the UK's inflation rate fell back to 0% in August, having been at 0.1% in July.

A sharp fall in oil prices leading to cheaper fuel, as well as low food costs following supermarket price wars, have contributed to the drop in the Consumer Prices Index (CPI) measure of inflation.

According to the ONS figures, the Retail Prices Index (RPI) measure of inflation rose to 1.1%, up from 1.0% in July. Meanwhile, the rate of core inflation - which removes the impact of changes in the price of energy, food, alcohol and tobacco - fell to 1.0% in August from the July rate of 1.2%.

British Chambers of Commerce economist David Kern said that the continuing low inflation rate strengthened the argument for the Bank of England keeping interest rates down. He said: ‘Low inflation supports living standards by boosting disposable income and will help to sustain the economic recovery.

‘However, last week's poor trade and manufacturing figures show that the recovery is still fragile, particularly in the face of major global uncertainties.’

The Bank of England's main interest rate has been at 0.5% since March 2009 – and with inflation still so far below the Bank’s target of 2%, there seems little immediate prospect of a rate rise.

Despite this, many analysts expect the Bank of England to start to raise interest rates in the first quarter of 2016.