ANNUAL UK consumer prices index inflation fell back to zero in August, the latest official figures show, underlining the country’s continuing economic challenges.

British Chambers of Commerce urged the Bank of England’s Monetary Policy Committee (MPC), in the wake of the inflation figures from the Office for National Statistics (ONS), to keep UK base rates at their record low of 0.5 per cent until “well into 2016”.

The Treasury has set the Bank of England a target of two per cent for annual UK consumer prices index (CPI) inflation. Annual CPI inflation was 0.1 per cent in July, and the drop back to zero was in line with economists’ forecasts.

The return to zero inflation was partly the result of sharper falls in petrol and diesel prices last month than in August 2014.

However, other significant downward influences came from a smaller rise in clothing and footwear prices last month than a year earlier, and from books and cultural services.

Petrol prices fell by 2.4 pence per litre month-on-month in August, according to the ONS figures. They declined by 1.8p per litre in August 2014.

The ONS said that clothing and footwear prices had risen by 1.5 per cent last month. They had increased by 2.6 per cent in August last year.

David Kern, chief economist at British Chambers of Commerce, said: “The latest figures confirm the recent pattern of inflation staying around zero per cent, and we expect this will continue over the next few months. Our forecast is that inflation will start edging up at the end of this year, rising slightly but remaining below the two per cent target until the middle of 2017.

“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.”

He added: “The prospect of continuing low inflation and global uncertainty should give the MPC no need to contemplate a premature increase in interest rates. We urge the MPC to keep rates at their current level until well into 2016.”

UK base rates have been at 0.5 per cent since March 2009.

Calum Bennie, at savings provider Scottish Friendly, said: “With falling oil prices and the supermarket price war persisting, inflation is not playing ball. This, combined with the recent price movements in the clothing and footwear sector, has led to CPI [inflation] remaining flat.”

Annual UK inflation on the old, all-items retail prices index measure edged up to 1.1 per cent in August, from one per cent in July.