Levelling fuel prices keep inflation steady at 2pc – for now

INFLATION held steady last month as energy price rises slowed and petrol costs levelled off.

Consumer prices in June were up 2pc on the year, matching the Bank of England’s target. This is below the 3.6pc rise in wages in the past year, indicating workers’ living standards are rising steadily, boosting their spending power and so supporting the economy.

However, there are reasons to think prices could pick up sharply, with nodeal Brexit risks pulling the pound down and so making imports more expensive. Sterling hit a two-year low below $1.24 after both Tory contenders hardened their Brexit rhetoric.

Analysts at Morgan Stanley also warned that the pound could fall to parity with the dollar if the UK left the European Union without a deal, a risk that the bank says is growing.

Morgan Stanley believes sterling could tumble as low as $1-$1.10 if the UK crashes out of the EU. “The response of inflation to a hard Brexit may be for a sizable rise thanks to a combination of higher tariffs, more restricted supply of incoming goods from Europe and lower sterling,” said economist George Buckley at Nomura.

He estimates that the 5pc fall in sterling since the Bank of England’s Inflation Report in May could add as much as 0.4 percentage points to inflation.

The Bank of England has warned that inflation is set to edge up and so it may have to raise interest rates to control prices. But few economists expect any change in rates soon.

In the June inflation data, the cost of running a vehicle rose by 1.9pc, the slowest increase in almost three years.

The price of shoes has fallen more than 7pc compared with June last year, although the cost of clothes edged up on the month, indicating the near yearlong run of price cuts could be fading.

Food prices also rose by 1.6pc, the biggest annual hike since last summer.