Static inflation puts August rate rise in doubt

Boxing Day sales

Boxing Day sales

The wholesale inflation rate, which is measured by Wholesale Price Index (WPI) shows that primary articles, which accounts for more than a fifth of the entire wholesale price index, grew 5.3 percent in June from 3.16 percent in May.

Moreover, the BoE has been repeatedly surprised over the years as the labour market has tightened but wages have risen less than expected - a pattern seen to a slightly lesser degree in most other advanced economies in recent years.

Households were also squeezed by gas and electricity costs, which rose 2.5% and 2.2% respectively, month on month.

There was also a drop in the prices of games, toys and hobbies, particularly in the cost of computer games.

"This week's data is the last to be published on wages and prices before the next interest rate decision, and with inflation remaining within reach of the 2% target, the Bank of England may well put off the rate rise for another few months".

The ONS reported the biggest month-on-month drop in clothing prices for any June since 2012 as shops slashed prices for the summer sales. While rising petrol and energy prices were indeed the largest factor sustaining the pace of price rises, it did not prove enough to increase inflation.

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"The economic data from the United Kingdom economy continues to be confusing and may lead markets to doubt the expected interest rate rise at the start of next month". The ONS report shows that the British economy has added 137,000 jobs, and that there are still 824,000 unfilled vacancies, but rates of pay are not increasing as rapidly as they once did.

Wage growth for British workers has slowed down to its worst pace in six months despite the record employment, making it more hard for the Central Bank (BoE) to decide whether to raise interest rates for the second time since the start of the global financial crisis.

Consumer prices were flat for the month in June, down from 0.4% a month earlier and compared to forecasts of 0.2%.

Tom Stevenson, an investment director at Fidelity International, said: "Faster rising prices would have given the Bank of England cover for an interest rate hike next month".

"Now it looks odds-on that the MPC will hold fire yet again". Economists had expected growth of 0.4%. "August's expected rate hike is, therefore, even less of a dead cert than it was".

The Retail Prices Index, a separate measure of inflation, was 3.4 per cent last month, up from 3.3 per cent in May. House prices across the United Kingdom also rose at the slowest pace in almost five years.

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