Inflation rises to 0.1% in July

CPI saw an annual increase of 0.1% in July after slipping to 0.0% in June, beating economists' predictions that inflation would remain flat.

Related topics:  Finance News
Rozi Jones
18th August 2015
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The core rate of inflation increased further, from 0.8% to 1.2% - its highest for five months.

The Office for National Statistics attributed the rise to clothing, transport, and recreation and culture. Falling prices for food and non-alcoholic beverages partially offset the rise.

On a monthly basis, inflation fell 0.2%.

The Bank of England's inflation report, released earlier this month, shows that inflation is expected to remain close to zero, before rising around the turn of the year.

The Bank of England has forecast Bank Rate to rise from early 2016 before reaching 1.7% by 2018 Q3.

Adam Chester, Head of Economic Research & Market Strategy at Lloyds Bank Commercial Banking, said:

“This morning’s UK CPI numbers defied expectations that plummeting oil prices and a strong pound could push headline inflation back into negative territory in July.

“While the headline rate of inflation ticked up from 0.0% to 0.1%, the “core” rate jumped from 0.8% to 1.2% - its highest for five months. The stronger-than expected outturn was largely due to stronger contributions from education, restaurants and hotels, and clothing and footwear - with the latter reflecting less aggressive summer discounting.

The surprise rise, especially in the core rate, has led to a knee-jerk spike higher in the pound. and reaffirmed market expectations that UK interest rates could rise in the first half of 2016.”

“The pound is currently trading nearly a cent higher against both the euro and US dollar, at around 1.4150 and 1.5650, respectively.  

“While the Bank of England is unlikely to read too much into one month’s data, the pickup in the core rate is a timely reminder that not all indicators of inflation are pointing south.”

Nick Dixon, Investment Director at Aegon UK, commented:

“Today’s news confirming six months of flat prices will be welcomed by pensioners, with macroeconomics now swinging in their favour as they benefit from the ‘triple lock’ minimum pension increase of 2% per year. Inflation is being held back by the strong pound and lower oil prices, and is likely to remain minimal in the short term. The inflation figures also raise probability of the first rate hike since 2007 being after Christmas, not before.”

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