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UK inflation holds steady in June

By Abigail Townsend

Date: Wednesday 17 Jul 2019

UK inflation holds steady in June

(Sharecast News) - UK inflation held steady in June, as falls in the cost of petrol and energy were offset by clothing and food, official data showed on Wednesday.
The Office for National Statistics said the consumer prices index, including owner occupier's housing costs, was 1.9% in June, unchanged on the previous month. Stripping out housing costs, CPI was 2%, also unchanged on May and in line with the Bank of England's inflation target.

Core inflation, which strips out volatile food, alcohol and energy prices, edged up to 1.8% from 1.7%.

The largest downwards contributions to the 12-month rate were motor fuels, accommodation services, and electricity, gas and other fuels, the ONS said. These were offset by rises in clothing and food prices.

Mike Hardie, head of inflation at the ONS, said: "The overall rate of inflation remains steady, with no chance in pace this month. Petrol and diesel prices fell this year, but rose a year ago, while clothes prices dropped by less than this time last year."

The ONS also released house price inflation data, which showed prices increased by 1.2% in the year to May, down from April's annual rate of 1.5%.

The lowest annual growth was in London, where prices contracted sharply, falling by 4.4% compared to a 1.7% decline in the year to April. It is the lowest annual rate for the capital since August 2009, when it was -7.0%.

The ONS said: "Over the past three years there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England."

David Cheetham, chief market analyst at XTB, said: "The inflation metric remains at the Bank of England's threshold of 2.0%. But Mark Carney and his fellow rate-setters are unlikely to place too great a weight on this, with economic data still very much of secondary importance given that Brexit uncertainty continues to loom large."

Phil Smeaton, chief investment officer at Sanlam UK, said longer-term, inflationary pressures "remain strong".

"The scenario of weaker growth and higher inflation, commonly known as stagflation, is an increasingly possible outcome. Sterling weakness and solid wage growth means that Carney will be keeping a watchful eye on the data but there is a pragmatic reluctance to apply the brakes while the UK's political situation is so uncertain, and he may be called to make a tough decision on rates sooner than he hoped."

Data released on Tuesday showed that annual wage growth in May had soared above inflation to 3.6%, while the pound has fallen heavily against both the dollar and euro this week over heightened fears of a no-deal Brexit.

Rupert Thompson, head of research at Kingswood, said: "News that wage growth has picked up to a 11-year high, along with the latest slide in the pound, will have increased the Bank's worries of a pick-up in inflation down the road. But with inflation, at least for the moment, in with [its] target, and the chances of a no-deal Brexit continuing to rise, any change in rates any time soon continues to look much more likely to be a cut than a hike."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Looking ahead, CPI inflation likely will fall a bit below the 2% target in the second half of this year as energy's contribution continues to decline.

"What's more, the recent pick-up in wage growth likely will loop back to CPI services inflation before long, given that it hasn't been countered by productivity gains. Core inflation, then, looks set to rise over the next 12 months, pushing the headline rate back up to the 2% target in 2020 and ensuring that the Monetary Policy Committee will only cut interest rates in the event of a no-deal Brexit."

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