UK inflation slips in August

Competition for shoppers helped keep a lid on UK prices in August

LONDON, England -- Inflation in the UK slipped lower last month as store owners held the line on prices due to increased competition for cost-conscious customers, adding to speculation that interest rates will remain at 38-year lows.

The underlying rate of inflation -- which does not include mortgage payments -- edged up 0.3 percent in August, the Office of National Statistics said on Tuesday, pushing the annual rate to 1.9 percent from 2 percent in July.

The August rate was in line with economists' forecasts and well below the government's target of 2.5 percent.

"Overall another month comfortably below the target, though from here on a modest uptrend is likely as we run off the very good end-2001 numbers and the post-September 11 fall in the oil price," Geoff Dicks, an economist at the Bank of Scotland, told Reuters.

The ONS said the August number was due mainly to weaker clothing and footwear prices -- which did not recover from sales levels as quickly as last year -- along with a smaller rise in the cost of household goods, as more consumers signed up for discount telephone packages.

Those effects outweighed the impact of higher prices for seasonal food in August, caused by poor weather condition for some crops, the ONS said.

The stable rate of inflation means the Bank of England's Monetary Policy Committee will have little reason to consider changing rates at it monthly meeting on October 3. The central bank has kept rates at a near four-decade low at 4 percent since last November as the expected recovery in the global economy stalled.

"It is unlikely to make much difference to the Monetary Policy Committee's thinking because it is in line with their inflation profile," Adam Chest, an economist at Halifax, told Reuters.