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UK Inflation Steady At BoE Target

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UK consumer price inflation remained stable at the central bank target in June. However, factory gate inflation eased to the lowest in nearly three years in June, data from the Office for National Statistics showed Wednesday.

Consumer prices increased 2 percent year-on-year in June, the same pace of growth as seen in May and in line with expectations.

Consumer prices including owner occupiers' housing costs also logged a steady growth of 1.9 percent in June. At the same time, core inflation accelerated to 1.8 percent in June from 1.7 percent a month ago.

There is little pressure for the Bank of England to adjust interest rates in either direction with CPI inflation remaining at the Bank of England's 2 percent target for a second consecutive month in June, Andrew Wishart, an economist at Capital Economics, said.

"The continued absence of an upward trend in underlying inflation despite strong pay growth means the risks to our forecast are skewed to the downside," the economist added.

"The overall rate of inflation remains steady, with no change in pace this month," Head of Inflation at the ONS, Mike Hardie said. "Petrol and diesel prices fell this year but rose a year ago, while clothes prices dropped by less than this time last year."

The largest downward contributions to inflation came from motor fuels, accommodation services and electricity, while the offsetting upward contributions came from clothing and food prices.

Another report from the ONS showed that factory gate inflation eased to the lowest since September 2016. Output prices climbed 1.6 percent annually, following a 1.9 percent rise in May.

Month-on-month, output prices fell 0.1 percent in June, which was the first negative change since December 2018. Economists had forecast prices to gain 0.1 percent after rising 0.3 percent in May.

At the same time, input prices declined for the first time since June 2016 driven by weaker crude prices. Input prices fell 0.3 percent on year after climbing 1.4 percent in May. Prices were expected to rise 0.3 percent.

On a monthly basis, input prices declined 1.4 percent after staying flat in May. Economists had forecast a 0.5 percent drop.

In a separate communique, the ONS said average house prices increased 1.2 percent on year in May, slower than the 1.5 percent increase in April. London experienced its biggest annual fall since August 2009 as prices declined 4.4 percent in May.

Elsewhere, Bank of England Executive Director for Markets Andrew Hauser said a steady-state balance sheet after quantitative easing of GBP 275-375 billion would be needed to deliver the Bank's monetary policy and financial stability policy objectives.

The discussion paper of BoE suggested that the current sterling preferred minimum range of reserves is of the order of GBP 150-250 billion.

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