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UK Inflation Rises Unexpectedly In June

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UK consumer price inflation increased unexpectedly in June driven by games and clothing cost, data from the Office for National Statistics showed Wednesday.

Consumer price inflation rose to 0.6 percent from a four-year low of 0.5 percent in May. The rate was expected to slow to 0.4 percent. Nonetheless, inflation continues to remain well below the central bank's 2 percent target.

Confounding expectations for a decline of 0.2 percent, consumer prices gained 0.1 percent on a monthly basis after remaining unchanged in May.

Meanwhile, excluding energy, food, alcoholic beverages and tobacco, core inflation advanced to 1.4 percent from 1.2 percent in May. The rate was forecast to remain unchanged at 1.2 percent.

Prices for games and clothing provided upward contributions to inflation, while food prices eased in June.

Bank of England Silvana Tenreyro said disinflationary pressures are set to remain for some time. Headline inflation will continue to weaken in the near-term, given a continuing sizeable impact from lower energy prices, and a negative contribution from the recent cut in VAT.

Although these effects on headline inflation should prove temporary, policy needs to continue to support aggregate demand through the crisis, she noted.

The small rise inflation probably will not be sustained for long as the effects of the Chancellor's VAT cut for the hospitality/tourism sectors and the "Eat Out to Help Out" restaurant discount scheme will probably drag inflation just below zero in the coming months, Paul Dales, an economist at Capital Economics, said.

ONS Deputy National Statistician for Economic Statistics Jonathan Athow said, due to the pandemic, clothing prices have not followed the usual seasonal pattern this year, with the normal falls due to the start of the summer sales failing to materialize.

Another report from ONS showed that output prices dropped 0.8 percent on a yearly basis, slower than the 1.2 percent decrease in May and the expected drop of 1.1 percent. This was the third consecutive month that the rate has been negative.

Month-on-month, output prices advanced 0.3 percent, reversing a 0.2 percent drop in May. Economists had forecast a monthly growth of 0.2 percent. This was the first time the monthly rate has been positive since January 2020 and the highest since July 2019.

Input prices fell by 6.4 percent on year in June compared to a 9.4 percent drop in May. This was the fifth consecutive fall in prices. Economists had forecast a 6.5 percent fall.

On a monthly basis, input prices were up 2.4 percent in June, faster than the 0.9 percent rise logged in May but slower than the 3 percent rise economists' had forecast.

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