UK inflation lower than expected, easing rate hike prospects

By on August 15, 2017

LONDON— Consumer price inflation in Britain unexpectedly held steady in July at an annual rate of 2.6 per cent, official figures showed Tuesday in a development that may ease the pressure on the Bank of England to raise interest rates soon.

The reading from the Office for National Statistics was slightly better than anticipated, largely because lower fuel costs helped offset a wide array of price increases. The consensus among economists was for a modest uptick to 2.7 per cent.

Still, inflation is above the Bank of England’s target of 2 per cent, which has stoked speculation in recent months that the central bank may have to raise interest rates at some point.

Inflation in Britain has risen sharply over the past year since the country voted to leave the European Union, a decision that prompted a big drop in the value of the pound, which raised the price of imported goods such as oil and food.

Inflation, which hit 2.9 per cent in May, was barely positive when Britons went to the polling booths to cast their votes in last year’s referendum.

The rise in inflation over the past year has hurt living standards as price increases outstrip annual wage rises, which are running at below 2 per cent.

The July inflation figures could prompt some policymakers at the Bank of England to conclude that the Brexit-related inflation spike has run its course.