"After two previous months of rises, this might come as a surprise for those expecting a continued increase towards the Bank of England’s 4% end of the year prediction."
CPIH, which includes owner occupiers’ housing costs, rose by 2.1% in the 12 months to July, down from 2.4% in June.
The largest upward contributions came from transport, while a variety of recreational goods and services made the largest downward contributions to the change between June and July.
Steven Cameron, pensions director at Aegon commented: "After two previous months of rises, this might come as a surprise for those expecting a continued increase towards the Bank of England’s 4% end of the year prediction.
“While this month’s fall may look like a welcome reprieve, it may be a temporary blip ahead of further rises later in the year. The return of higher and rising inflation is starting to prey on people’s minds, and will be of increasing concern if this is sustained for longer periods. Aegon’s research shows 70% of adults are concerned about the impact of high inflation on them personally. High inflation, even over the medium-term, can have a big impact on people’s purchasing power and with interest rates on cash savings barely scraping above zero, money left in savings accounts is effectively losing value in real terms."
Derrick Dunne, CEO of YOU Asset Management, commented: “Much to the relief of monetary policy-makers, the UK’s red-hot price inflation has somewhat cooled for the first time since February, with a notable drop in the CPI from 2.5% in June to 2.0% in July. But although this undoubtedly eases pressure on the Bank of England, its economists will know that this is merely a recess, not a reversal. Despite the drop, we have not passed the peak.
“Consumer appetite may well have calmed a little since the frenzy surrounding ‘Freedom Day’ in June, but summer sales were a driving factor: the largest downward contributions in July came from recreation and culture followed by clothing and footwear. Nevertheless, demand in general remains strong, and as society slowly restores some normality, there is plenty of potential for further increases.
“For now, the threat of inflation has by no means subsided. Today’s data is a welcome reminder that the danger is transitory, but with a possible peak as high as 4% this year, a defensive rate rise is still to be expected. Savers and investors should continue to prepare for that eventuality, whilst ensuring that their plans make the most of the recovery.”
