United Kingdom interest rate rise in doubt as inflation stays at 2.4%

Pound to euro exchange rate uk inflation

GettyPound to euro exchange rate UK inflation rates caused the pound to drop

A further rise in CPI is likely to strengthen the case for a Bank of England interest rate hike next month, though concerns that prices are rising faster than wages could see rate-setters have second thoughts.

However, the summer sales weighed on inflation after clothing prices were cut, in particular on men's fashion.

However, the political crisis for Theresa May's government, lower-than-expected inflation figure and the fact wage growth is falling back may jangle nerves among policymakers that the time is not right for an increase in borrowing costs.

After a bumper two months retail sales in June disappointed, raising questions about the strength of the rebound and putting an interest rate rise in doubt.

Core inflation, which strips out energy, food and tobacco prices, fell to 1.9 per cent from 2.1 per cent in May - below all forecasts and the weakest reading since March 2017. Annual inflation was expected to accelerate to 2.6 percent, according to a Bloomberg survey of economists.

Average UK earnings increasing by 2.7% in the three months up to May, meaning that wages are still growing above inflation.

Consumer prices were unchanged from May, the Office for National Statistics said on Wednesday.

Factories, however, have chosen to absorb much of the pressure rather than pass it on to consumers with output prices rising 3.1 percent on the year.

Pound to euro exchange rate uk inflation
BloombergPound to euro exchange rate Sterling fell to a four-month low

This will be the second time in almost a decade they are increased, following a rise from 0.25 per cent to 0.5 per cent previous year.

Weak economic data released over the past few weeks signals that there are limited demand-driven pricing pressures that have resulted in lower inflation, said NKC economist Elize Kruger. Now it looks odds-on that the MPC will hold fire yet again.

With so much Brexit uncertainty ahead of March's European Union departure, the Bank of England may not have many more chances to raise interest rates in the coming months, especially if the prospect of a "no deal scenario" becomes more likely.

"Therefore, the pace of interest rates hikes is likely to remain very gradual".

The Consumer Price Index (CPI) in the United Kingdom rose 2.4% over the year in June 2018, unchanged from May.

'It had been expected to bounce back up to 2.6 per cent or even 2.7 per cent on the back of higher fuel and energy prices.

Petrol prices are up 17.45 percent in June from 13.90 in May, while diesel prices grew 21.63 percent in June as compared to 17.34 percent in May.

Wholesale inflation rate, which is measured by the wholesale price index (WPI), is an indicator of price movements and largely mirrors trends in shop-end prices.

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