UK in­fla­tion rate rises to 0.1%

The Pak Banker - - BUSINESS -

The UK's in­fla­tion rate turned pos­i­tive in July, with the Con­sumer Prices In­dex mea­sure ris­ing to 0.1% from June's 0%.

A smaller fall in the price of cloth­ing was the main rea­son for the rise, the Of­fice for Na­tional Sta­tis­tics said. The Re­tail Prices In­dex mea­sure of in­fla­tion was un­changed at 1% - the fig­ure that will be used to cal­cu­late rail fare in­creases next year. CPI has been al­most flat for the past six months, hav­ing turned neg­a­tive in April for the first time since 1960. The ONS said fall­ing food and non­al­co­holic drink prices par­tially off­set the pos­i­tive im­pact of the smaller rise in clothes prices.

The un­der­ly­ing mea­sure of CPI in­fla­tion, which strips out in­creases in energy, food, al­co­hol and to­bacco, rose to 1.2% in July, a five-month high. "This is the sixth month run­ning that head­line in­fla­tion has been at or very close to zero," said Richard Camp­bell from the ONS. "While house­holds will have seen in­di­vid­ual prices rise and fall, the over­all shop­ping bas­ket bought by the coun­try re­mains lit­tle changed in price com­pared with a year ago."

An­a­lysts say the in­fla­tion rate could fall back again, partly due to the drop in the price of oil, which has slumped by nearly a quar­ter in the past two months. "This morn­ing's in­fla­tion fig­ures are higher than ex­pected, but could easily fall back next month," said Peter Cameron at Eden­Tree In­vest­ment Man­age­ment. "Brent Crude has dropped be­low $50 a bar­rel and China, the world's largest ex­porter, is po­ten­tially now un­leash­ing a new wave of de­fla­tion­ary forces around the world through the de­val­u­a­tion of its cur­rency."

There has been con­sid­er­able spec­u­la­tion over when the Bank of Eng­land - which has a tar­get in­fla­tion rate of 2% - might start to raise in­ter­est rates. How­ever, Mr Cameron said it was "hard to en­vis­age a rate rise this side of Christ­mas".

Sa­muel Tombs from Cap­i­tal Eco­nom­ics said rais­ing rates could be post­poned un­til the sec­ond quar­ter next year, with in­fla­tion "likely to turn neg­a­tive again over the next few months". How­ever, the pound strength­ened against the dol­lar im­me­di­ately af­ter the in­fla­tion rate was an­nounced, re­flect­ing the fact that the rate was higher than ex­pected. The pound rose by al­most a cent to $1.5667.

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