Surprise weakness of inflation data stirs debate over interest-rate rise

Summer clothing sales holds back inflation

RECENT hikes in energy costs and petrol prices are expected to send United Kingdom inflation to its highest level in four months when official figures are disclosed on Wednesday.

The pound tumbled towards $1.30 and 10-year British government bond yields fell to their lowest since the end of May following the data, which also showed weakening in an underlying measure of inflation.

An anticipated pickup in United Kingdom inflation failed to materialize last month, a development that sent the pound lower as investors pared bets for a Bank of England interest-rate increase next month.

"The pairing hit a low of €1.120 as bets that the Bank of England (BoE) will hike interest rates fell 10 per cent".

"However, gas and electricity and petrol prices all rose, with consumers seeing the highest price at the pump for almost four years, with inflation remaining steady overall".

On Tuesday, wage growth fell to it's lowest in six months, just above the rate of inflation.

CPI figures released earlier today came in at 2.4 percent against expectations for a figure of 2.6 percent, continuing its downtrend and relieving some of the pressure on the BOE to hike rates in August.

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

Ben Brettell, senior economist, Hargreaves Lansdown, said: "There's certainly a case for higher rates as soon as next month".

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Despite clothing sales and cheaper computer games, consumers also battled with falling wage growth.

The rate of wage growth for United Kingdom workers has fallen to its lowest level in six months, in spite of record numbers of people being in-work around the country.

There have been some signs of recovery which could encourage the BoE to raise interest rates in August, to counter the high levels of Inflation that have been seen since the Brexit vote.

"These two components are likely to result in a further increase if they rise simultaneously", she said.

Prices rose by three per cent in the first quarter of 2018 - the lowest increase since August 2013.

The cost of fuel rose to its highest level in nearly four years last month and held up the rate of inflation in the United Kingdom, according to the Office for National Statistics.

Separate data from the ONS showed that average house prices in the United Kingdom in May grew at the slowest annual rate since August 2013.

Prices usually fall between May and June as summer sales get under way, but the 2.3% drop this year compares with a 1.1% fall a year ago, and is the largest decline during the same period since 2012.

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