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UK inflation falls to 1 6

Article By: ,  Financial Analyst
August 20, 2014 11:15 AM

The rate of UK inflation fell more than expected during July, according to the latest figures from the Office for National Statistics (ONS).

Officials at the ONS noted that the Consumer Price Index (CPI) inflation fell from 1.9 per cent in June to 1.6 per cent in July. This was driven by the easing cost of clothing, footwear, food and non-alcoholic drinks, however wages still lagged behind the rate of inflation growing by just 0.6 per cent in the three month to June.

The drop of inflation has relieved a little pressure on the Bank of England which had warned that interest rates could be increased in the future. Earlier in the month, the bank had kept interest rates at a record low of 0.5 per cent, the 65th consecutive month where policymakers had come to this verdict. However, it came with a note of caution from the governor of the Bank of England Mark Carney.

Mr Carney hinted that the trend of low interest rates could come to an end at some point in the year. Minutes from the meeting of the Monetary Policy Committee (MPC) are expected to be released today (August 20th) and if there is a sway of votes towards a rate rise it would mean a split committee for the first time since July 2011.

Alongside the CPI showing a drop in inflation, the Retail Prices Index saw a drop from 2.6 per cent to 2.5 per cent. The latest figures from the ONS have been described as positive news and will mean the Bank of England is not pressured into introducing a sharp rise in interest rates due to the inflation looking subdued.

David Kern, chief economist at the British Chambers of Commerce, said: "Essentially if inflation stays where it is today the Bank of England can afford to wait. On the basis of what we know today I think they can afford to wait until the middle of next year."

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