Inflation data gives central bank interest rate headache

● Consumer price index stalls at 2.4% annual rate in June ● Experts divided over chances of August rate hike

Opinion was divided yesterday on whether or not the Bank of England will raise interest rates next month after inflation unexpectedly stalled.

Official figures revealed that the consumer prices index (CPI) measure of inflation held steady at 2.4 per cent in June, unchanged from a month earlier. Economists had been expecting the annual rate of CPI to nudge up to 2.6 per cent.

A recent jump in oil prices raised the price of motor fuel, with petrol rising 2.7p per litre on the month to 128p, while diesel rose 2.9p to 132.1p. It marks the highest level for both petrol and diesel since September 2014.

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

But there was some relief on the high street, where clothing discounts left more cash in shoppers’ wallets. There was also a drop in the prices of games, toys and hobbies, particularly in the cost of computer games.

The pound fell sharply after the release of the latest inflation data from the Office for National Statistics (ONS).

Jacob Deppe, head of trading at online trading platform Infinox, said: “No change on inflation will almost certainly mean no change on rates next month. If inflation, as expected, had nudged up, that may have increased the likelihood of a rate rise, despite evidence of stuttering wage growth.

“Against a backdrop of political pandemonium and deep economic uncertainty, even if inflation had risen in June, the Bank may well still have kept rates at their current level next month.”

Ben Brettell, senior economist at investment group Hargreaves Lansdown, said: “There’s certainly a case for higher rates as soon as next month. But I think the decision is more finely balanced than the markets would have you believe.

“The Bank will be mindful of Brexit-related uncertainty, and may decide to wait for confirmation that the weak firstquarter growth figure was just a blip before raising borrowing costs.”

However, other commentators continued to forecast a quarter-point hike in rates at the August meeting of the central bank’s monetary policy committee (MPC).

Richard Falkenhall, senior foreign exchange strategist at SEB, the Nordic corporate bank, said: “We have for a long time been sceptical about a rate hike when the MPC meets on 2 August.

“However, given recent data on growth, inflation and wages, and not least the BOE communication during the summer, we have to retreat from this position. We realise that it would probably take a serious political crisis or a complete collapse in Brexit negotiations to stop the central bank from tightening to 0.75 per cent in August.”