Inflation holds firm as retail offsets energy and fuel hikes

19 July, 2018, 16:38 | Author: Gerard Cortez
  • BRITAIN-ECONOMY-INFLATION

Despite motor fuel prices rising to their highest since 2014, annual consumer price inflation held in June at 2.4 per cent, the Office for National Statistics said.

The think-tank said it expects CPI to rise back up to 2.7 per cent in the near term before "softening" to end 2018 at 2.3 per cent.

Households were also squeezed by gas and electricity costs, which rose 2.5 per cent and 2.2 per cent respectively, month on month.

There was also a drop in the prices of games, toys and hobbies, particularly in the cost of computer games.

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.

There was little immediate market reaction to the data, which economists said was unlikely to dissuade the majority of the BoE´s policymakers from raising rates on August 2 after their next meeting.

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"The steady downward progression in Consumer Price Index (CPI) inflation observed earlier this year looks likely to reverse course, at least temporarily, over the next few months", it said.

Without the increased price of fuel, the UK's headline rate of inflation would likely have dropped last month, the ONS said, continuing a steady decline witnessed throughout 2018. Month-on-month growth turned negative, with sales shrinking by 0.5% between May and June.

Tej Parikh, senior economist at the Institute of Directors, said: "The stickiness in prices will reduce pressure on the Bank of England to hike interest rates in August".

A Reuters poll of economists published on Tuesday showed 47 out of 75 thought the BoE would raise rates to a new post-financial crisis high of 0.75 per cent in August. While the central bank worries that growth is close to the modest pace at which it will start to push up inflation, Wednesday's data brought little sign of this. There could, however, be rising inflation ahead as manufacturers raise their prices.

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".

The Retail Prices Index, a separate measure of inflation, was 3.4 per cent last month, up from 3.3 per cent in May. The month of June also saw a price rise in onions. The worst-performing region was London, where prices fell 0.4 percent as Brexit fears and stretched affordability sapped demand.

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