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UK July Inflation Exceeds 2% Target

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UK consumer price inflation accelerated unexpectedly in July, exceeding the Bank of England's 2 percent target, data from the Office for National Statistics revealed Wednesday.

Consumer prices climbed 2.1 percent year-on-year in July, faster than the 2 percent increase in June. Inflation was forecast to slow to 1.9 percent.

On a monthly basis, consumer prices remained flat, while prices were expected to drop 0.1 percent.

The increase in inflation was driven by prices of games, hobbies and clothing and footwear. Meanwhile, downward contribution came from transport cost.

"While CPI has the potential to ease in coming months, we suspect the Bank of England will continue to focus on the strong wage growth backdrop," James Smith, an ING economist, said.

Unlike in other global economies, a UK rate cut seems unlikely in the near-term, the economist added.

Ruth Gregory, an economist at Capital Economics, said with the ongoing strength in pay growth and the fall in the pound likely to leave inflation above the 2 percent target in 2020, it is only in a no deal Brexit that the BoE will cut rates.

Average earnings had increased 3.7 percent on year in the second quarter, which was the fastest since June 2008.

Another report from ONS showed on Wednesday that output price inflation climbed to 1.8 percent in July from 1.6 percent in June. The rate was bigger than the expected 1.7 percent. The annual rate has remained positive since July 2016.

On a monthly basis, output prices gained 0.3 percent compared to a forecast of 0.1 percent. Prices had dropped 0.1 percent in June.

At the same time, input price inflation rose to 1.3 percent from 0.3 percent in June. Economists had forecast prices to rise again by 0.3 percent. On the month, input prices advanced 0.9 percent, offsetting June's 0.8 percent fall.

In a separate communique, the ONS said average house prices increased 0.9 percent year-on-year in June, the same rate as seen in May. The lowest annual growth was in London, where prices fell 2.7 percent from last year.

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