Partly Cloudy

Partly Cloudy

max temp: 12°C

min temp: 11°C

ESTD 1874 Search

Economy: Bigger than expected fall in July CPI inflation

10:01 19 August 2014

CPI inflation eased back to 1.6% last month, from 1.9% in June, official figures revealed today.

CPI inflation eased back to 1.6% last month, from 1.9% in June, official figures revealed today.

Inflation fell more sharply than expected last month as a late start for clothing sales spilled over into July.


The Consumer Price Index (CPI) measure of inflation fell from 1.9% in June to 1.6%, meaning that inflation has been below the Bank of England’s 2% target for seven months in a row.

It is the longest run of below-target figures since the era of low inflation which began in 1997 and ended in 2005.

The steep fall is likely to ease any pressure on the Bank of England to raise interest rates amid speculation about the timing of the first increase since they were slashed to 0.5% five years ago.

The largest downward contribution to inflation came from clothing and footwear, which fell 5.7% between June and July. Prices of these products usually fall at this time of year but the drop was larger in 2014 as retailers had held off on discounts in June amid robust demand.

Food and non-alcoholic beverages fell by 0.4% year on year after no change in June and a 0.6% drop in May. The May figure was the first decline since March 2006 and the three consecutive month of flat or negative inflation is the longest period in nearly a decade.

The last longest run of flat or falling food prices was at the end of 2004, when they fell on an annual basis for five months in a row.

CPI was also eased in July by falling prices for spirits and wine, while bank overdraft charges and fees for bankers’ drafts put downward pressure on inflation too.

However, increases in used car prices and sea fares made an upward contribution.

Samuel Tombs, senior UK economist at Capital Economics, said the data was “considerably weaker” than anticipated by the Bank of England’s rate-setting monetary policy committee (MPC) in its latest Inflation Report last week.

“July’s fall in UK CPI inflation puts it back on a downward trend which we still think could see it ease to as low as 1% by the end of the year,” he said.

“The decline in CPI inflation from 1.9% in June to 1.6% was in line with our below-consensus forecast. The drop partly reflected a fall back in inflation in the clothing and household goods sectors which had been boosted in June by the slightly later start to the summer sales this year.

“Food price inflation also eased from 0% to -0.4% in July, reflecting a combination of falling commodity prices and intense competition.”

He added: “July’s outturn is considerably weaker than the 1.9% figure anticipated by the MPC in last week’s Inflation Report. And we continue to expect the Committee to be surprised by inflation’s weakness over the coming months.

“The disinflationary effects of sterling’s appreciation have not fed through fully to the shops yet. Sharp falls in wholesale energy prices mean that utility bills should hold broadly steady this winter. And the recent weakness of wages growth should keep a lid on price rises in the consumer services sector.

“So, while low inflation may not be sufficient to prevent the MPC from moving to ‘normalise’ interest rates soon, we believe that a general environment of benign inflationary pressure will give the committee scope to raise them at an even more gradual pace than currently anticipated by the markets.”



Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files

Please log in to leave a comment and share your views with other East Anglian Daily Times visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by East Anglian Daily Times staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique East Anglian Daily Times account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

Alistair Ponder, Leanne Castle and Alex Till of Menta receive their trophy from Declan Curry at the National Enterprise Network annual awards.

Bury St Edmunds-based enterprise agency Menta has won an Enterprise Support Organisation of the Year accolade at the National Enterprise Network’s annual awards.

An artist's impression of the new Hampton by Hilton hotel to be built and Stansted Airport,alongside the existing Enterprise House office complex, right.

A new £45million hotel is to be built close to the main terminal at Stansted Airport, bringing the number of hotels on the airport site to five and creating around 60 new jobs.

Frank Brumby, eastern region chairman of R3.

“Zombie” businesses are on the march in the East of England, according to a survey by insolvency trade body R3.

Royal Bank of Scotland has passed the latest Bank of England stress test, but missed fulfilling one of the capital guidance criteria.
Photo: David Cheskin/PA Wire

All seven of the UK’s largest lenders have passed the Bank of England’s latest “stress test”.

Max Chmyshuk, founder and managing partner at Fleximize.

More than £25million-worth of credit applications by small and medium-sized enterprises (SMEs) in eastern England are being rejected by banks every month, according to alternative lender Fleximize, which is based Ipswich.

Most read

Most commented

Topic pages

Local business directory

Our trusted business finder

Property search

e.g. Oxford or NW3
Powered by Zoopla

Digital Edition

Read the East Anglian Daily Times e-edition today E-edition

Great British Life

Great British Life
MyDate24 MyPhotos24