British inflation slows, increasing stimulus chances

Annual inflation in recession-hit Britain slowed slightly to a rate of 2.5 percent in August, official data showed on Tuesday, increasing the chances of more stimulus from the Bank of England. The 12-month rate compared with inflation of 2.6 percent in July, the Office for National Statistics (ONS) said. \"The Consumer Prices Index (CPI) annual inflation stands at 2.5 percent in August 2012, down from 2.6 percent in July,\" the ONS said in a statement. August\'s level matched analysts\' consensus forecast, according to a survey by Dow Jones Newswires. The ONS said the slowdown reflected smaller price increases for clothing and household goods and services compared with in August 2011. \"These were partially offset by an upward pressure from transport -- particularly motor fuels,\" it added. The CPI meanwhile advanced by 0.5 percent in August on a month-on-month basis, the ONS said. \"The easing back in consumer price inflation in August supports belief that the Bank of England will enact further stimulus to help the economy in the fourth quarter, despite some recent improved news on economic activity,\" said Howard Archer, chief UK economist at research group IHS Global Insight. \"Although there is a risk that inflation will be sticky over the coming months, and despite some recent improved data and surveys, extended weak economic activity rather than inflation remains by far the main problem facing the UK economy.\" Many analysts expect the Bank of England to increase its quantitative easing (QE) stimulus programme before the end of the year with Britain stuck in a deep recession. The BoE has pumped Britain\'s economy with £375 billion ($609 billion, 466 billion euros) since March 2009 in a bid to increase lending by retail banks and stimulate growth. With inflation falling last month, experts on Tuesday said that the prospect of more QE had increased. While printing new money is seen as inflationary, a drop in price inflation gives the BoE room to manoeuvre. ING Bank analyst James Knightley said he was forecasting British annual inflation to fall to the BoE\'s 2.0-percent target by the end of the year. \"This means that the Bank of England will have room to implement more quantitative easing\" at it regular monthly meeting in November, he added in a note to clients. Under QE, the BoE creates new cash to purchase assets such as government and corporate bonds with the aim of boosting lending and economic output. Archer said he believed the Bank of England would deliver a further £50 billion of QE in the fourth quarter, bringing the total to £425 billion. Further British QE would follow recent action by the US Federal Reserve and the European Central Bank to stimulate the world\'s biggest economy and the eurozone. Recent official data showed that Britain\'s gross domestic product (GDP) shrank 0.5 percent between April and June compared with the first quarter, deepening the country\'s recession that began in late 2011.