Steady UK Inflation, Falling Core Figure Dull Outlook For August Rate Hike

Daniel Fowler
July 19, 2018

Faster rising prices would have given the Bank of England (BoE) more of a motivation to increase interest rates next month, but today's inflation data combined with yesterday's lacklustre wage growth figures could force policymakers into a rethink.

"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".

But in a note to clients, Capital Economics' senior United Kingdom economist Ruth Gregory said that while Wednesday's inflation numbers "perhaps reduce the chances of a rate hike in August. somewhat counter-intuitively, lower inflation might make it easier for the MPC to raise rates as it will relieve the pressure on consumers' incomes". After all, a sustained trend of high WPI inflation will not only add pressure on the RBI to raise interest rates, but could also potentially undermine the pace of GDP growth.

"As well as stagnant real incomes, the Bank of England will be mindful of the deepening economic and political uncertainty" related to Brexit, said Tom Stevenson, investment director Fidelity. While the WPI is no longer the primary focus in the Reserve Bank of India's inflation-targeting approach to monetary policy formulation - having ceded that role to the Consumer Price Index - the gauge remains economically significant nevertheless.

Sterling fell against the U.S. dollar to its lowest value in 10 months in response.

The EY Item Club earlier this week said it expects a steady slide in CPI over the remainder of the year.

Fed Chairman Jerome Powell gave an upbeat assessment of the outlook for the USA economy on Tuesday and downplayed the impact of uncertainty over US trade policy on the outlook for additional rate hikes. The Bank said previously that if the economy continued to improve, it would raise rates.

Barack Obama: ‘Men Have Been Getting on My Nerves Lately’
The ex-president noted that in a moment filled with "disturbing headlines", it was imperative to "get some perspective". The politics of "fear and resentment" is now on the move, in the United States and across the world, Mr.

Economists had expected rising petrol prices, following higher oil prices, to push up the headline measure.

It also noted a 0.6% year-on-year reduction in food costs.

Some of the biggest energy suppliers - including British Gas, Scottish Power, and EDF Energy - have announced price rises set to kick in over the summer.

June retail sales came in at -0.5%, versus analysts forecasts of 0.4% growth.

Vegetables - including potatoes - also fell 0.9% month on month.

The U.S. dollar index, which measures the greenback's strength against a basket of six major currencies, was up 0.34% to 95.04, within close reach of the eleven-month high of 95.25 reached in late June.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) remained at 2.3% in June 2018 and has steadied from its recent high of 2.8% in autumn 2017.

Other reports by

Discuss This Article