UK takes surprise dip into deflation as the City bets against an interest rate rise

Britain has unexpectedly veered back into deflation in September thanks to falling petrol costs, gas bills and High Street sales.

The Consumer Prices Index slipped into negative territory for the second time this year at -0.1%.

The pound tanked on the figures, as the City bet against Bank of England rate rises.

It was down than a cent against the dollar, as most pundits predicted the CPI would remain unchanged at zero.

Financial markets are currently not expecting Threadneedle Street to raise rates until 2017, although Governor Mark Carney has said the Bank is looking through lower commodity prices and economists predict the current bout of deflation will be short-lived.

ING Bank’s James Knightley said: “With oil prices appearing to have found a floor, sterling having softened a little and the supermarket price war perhaps having less of a depressing impact on food prices we see the potential for headline CPI to pick up relatively swiftly.

“The market pricing of the first BoE move coming in early 2017 seems difficult to square with this outlook.”