BoE's Carney says CPI drop is good, but will not last

Bank of England Governor Mark Carney said the fall in the cost of living was good for Britons but would not last long.

"Enjoy it while it lasts"was the message from Carney following Tuesday's release of a lower-than-expected reading on consumer prices in the UK.

“We expect inflation to be very low over the next few months. But over the course of the year as we get towards the end inflation should start to pick up towards our 2% target.

"The British people should enjoy this period of very low energy prices low, very low food prices, enjoy it while it lasts,” Carney said following the release of the data, according to ITV.

However, Carney might also have been looking to hammer home the message that the current light bout of disinflation was not a reflection of a deeper-seated ailment in the economy. To date, private sector economists had unanimously been of broadly the same opinion.

“When the European Central Bank began to see negative euro area inflation prints in January it embarked on quantitative easing. But we think read across to the UK is limited, with the UK’s economic backdrop more assured, whilst the Euro area at the time was facing a more precarious economic backdrop and declining measures of medium term inflation expectations,” Investec's economics team wrote in a research note e-mailed to clients on Tuesday morning.

The data came against the backdrop of a recent stream of weaker than expected economic data out of China and the US, although an improvement was widely forecast for the second half of the year.

In April, the consumer price index slipped by 0.1% in annual terms, the Office for National Statistics reported – the first year-on-year drop since March 1960, when price fell 0.6%.

The median estimate from economists was for a flat reading.

The main downward pressure on the annual rate of CPI came from a decrease in air and sea fares, ONS said in a statement.

When compared with the prior month, CPI advanced by 0.2% month-on-month (consensus: 0.4%).

Core consumer prices advanced at an annualised clip of 0.8% (consensus:1.0%).

In the same report Investec forecast headline CPI would finish the year at around 1%. Core consumer prices – which strip out the more volatile categories such as food and energy – were also expected to firm in the latter stages of 2015 as wage growth picked up.

As of 12:25 the yield on 10-year Gilts was retreating by seven basis points to 1.88%. The yield on the benchmark German bund of the same maturity was lower by the same amount at 0.58%.

Cable on the other hand was down by just 0.02% at 1.5496.