Inflation figures cast doubt over interest rate rise


The inflation data were significantly below economists' expectations of 2.6 per cent, with deflation in clothes and games, toys and hobbies pulling back the overall level.

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.

"The contribution to inflation from motor fuel, electricity and natural gas prices likely leapt".

The Central Bank of England governor Mark Carney said earlier this month that the economy and wages are rising as the central bank expects to raise interest rates.

Petrol prices are up 17.45 percent in June from 13.90 in May, while diesel prices grew 21.63 percent in June as compared to 17.34 percent in May.

Faced with falling wage growth, the latest snapshot from the ONS poses the Bank of England with limited grounds for raising interest rates next month.

Annual inflation stayed at 2.4 percent, surprising economists who had expected the rate to accelerate to 2.6 percent.

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It helped prices for recreation and culture drop 0.4% between May and June this year, though the statistics agency noted that prices for computer games are heavily dependent on the make-up of bestseller charts, leading to significant fluctuations from month to month.

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.

"Transport [as a contributor to headline CPI] increased from 0.7 of a percentage point in May 2018 to 1.0 percentage points in June".

Tom Stevenson, investment director at Fidelity International, said: 'June's unchanged inflation rate is a huge surprise. Core inflation was significantly weaker than expected at 1.9% year on year, which will make it more hard for the Bank of England to raise rates, particularly given a backdrop of Brexit and trade uncertainty.

"Now it looks odds-on that the MPC will hold fire yet again".

Economists polled by Reuters had on average expected to see the first increase this year, to 2.6 per cent. Britain's economy appears to be picking up after a slow first three months of the year, when unusually heavy snow hurt demand.

Meanwhile, monthly input price inflation eased notably to 0.2 percent from 3.3 percent in May. However, this was partially offset by the buoyant property market in the Midlands'.