United Kingdom inflation unexpectedly holds steady in June

Darnell Taylor
July 19, 2018

'Even if the Bank of England does deliver on a rate hike in August, any further rate hikes are likely to be at a "gradual pace and to a limited extent" so it will be some time before interest rates catch up with inflation'.

Analysts' expectations had been for inflation's Consumer Prices Index 12-month rate to have risen to 2.6 per cent last month.

"Consumers have been feeling the benefit of the summer clothing sales, and computer game prices have also fallen", Mike Hardie, the ONS' head of inflation said in a statement.

Petrol prices hit their highest in four years in the month, halting the decline in inflation that has been occurring since the start of 2018.

On Tuesday data showed British workers' wages rose at the slowest rate in six months during the three months to May despite a record number of people in jobs, challenging the BoE as it considers raising rates next month.

Bank Governor Mark Carney earlier this month said that a revision in the first quarter growth rate from 0.1% to 0.2% gave him "greater confidence" that softer United Kingdom activity in the first three months of the year was "largely due to the weather, not the economic climate".

He said: "Markets had been pricing in around an 80% chance the bank would lift borrowing costs in August, but today's inflation data combined with yesterday's lacklustre wage growth figures could force policymakers into a rethink". Comments from BoE officials over the next week could be a "game-changer", Monks said, drawing parallels with May, when a spate of poor data thwarted a widely expected rate hike.

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"As well as stagnant real incomes, the Bank of England will be mindful of the deepening economic and political uncertainty" related to Brexit, said Tom Stevenson, investment director Fidelity.

Inflation unexpectedly stalled last month as higher prices for motor fuel, gas and electricity were offset by deeper discounting by clothing retailers.

It marks the highest level for both petrol and diesel since September 2014. Prices in London alone house prices dropped by 0.4 percent on the year.

Some of the largest energy suppliers - including British Gas, Scottish Power, and EDF Energy - have announced price rises set to kick in over the summer.

This will be the second time in almost a decade they are increased, following a rise from 0.25 per cent to 0.5 per cent past year.

That increase was due to higher prices for clothing and recreational goods.

Core inflation, which strips out energy, food and tobacco prices, fell to 1.9 per cent from 2.1 per cent in May - below all forecasts and the weakest reading since March 2017.

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