UK Inflation Accelerates Unexpectedly In July

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UK consumer price inflation rose unexpectedly to a four-month high in July on higher clothing and petrol prices, data from the Office for National Statistics showed Wednesday.

Consumer price inflation rose to 1 percent in July, while the rate was forecast to remain unchanged at 0.6 percent. This was the highest rate since March.

Clothing, rising prices at the petrol pump, and furniture and household goods made large upward contributions to inflation, while falling food prices partially offset the annual increase.

At the August rate-setting meeting, the Bank of England had forecast inflation to turn briefly negative in the near term, falling to -0.3 percent in August driven by VAT cut and 'Eat Out to Help Out' scheme.

According to BoE, inflation will fall further below the 2 percent target and average around 0.25 percent in the latter part of the year, largely reflecting the direct and indirect effects of Covid-19.

"The combination of VAT changes and the 'Eat Out to Help Out' scheme mean we're set for a big downward move in August, while the rise in unemployment means domestically-generated inflation is set to remain muted," James Smith, an ING economist said.

On a monthly basis, consumer prices gained unexpectedly by 0.4 percent, faster than the 0.1 percent rise in June, data showed. Prices were forecast to drop 0.1 percent.

Core inflation that excludes costs of energy, food, alcoholic beverages and tobacco, accelerated to 1.8 percent from 1.4 percent in June.

Another report from ONS showed that output prices declined for the fourth straight month in July. Output prices fell 0.9 percent annually, the same rate of decline as seen in June and in line with economists' expectations.

Month-on-month, output prices gained again by 0.3 percent, as expected, in July.

At the same time, the annual fall in input prices slowed to 5.7 percent in July from 6.7 percent in June.

Prices were expected to drop 6.1 percent. This was the sixth consecutive month that the rate has been negative but the third consecutive month that it has picked up.

On a monthly basis, input prices advanced 1.8 percent, slower than the 3 percent rise in June but faster than economists' forecast of 1.1 percent.

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