UK inflation rate in surprise fall in June

The latest official inflation figures for the UK have defied analysts' expectations by falling from May's rate of 2.9 per cent to 2.6 per last month, it was revealed on Tuesday.Economists had been expecting the rate to remain steady or even edge higher in June but, mainly thanks to a fall in the price of fuel, it unexpectedly dropped, according to data from the Office for National Statistics (ONS).Nevertheless, it still means the Consumer Price Index (CPI) rate is running well above the rise in take-home pay and also remains well above the government target of two per cent.

Price of oil has affected inflation figures

Jonanthan Athow, ONS deputy national statistician, said, "Today's fall in inflation is mainly due to drops in petrol and diesel prices. However, the rate remains higher than in the recent past."Nick Leung, research analyst at fund manager WisdomTree, commented, “Today’s inflation reading is slightly softer than expected, underpinned by a combination of oil price weakness, a stabilising pound and import-cost induced inflationary pressures undermining consumers’ debt-fuelled spending power.”Ben Brettell, senior economist at Hargreaves Lansdown, said if the downward pressure on inflation were to continue, then the Bank of England was likely to delay any decision to raise record low interest rates."If inflation continues to moderate, this could bode well for economic growth – the UK economy is heavily reliant on the consumer, and economists had expected falling real incomes to eventually translate into lower retail sales. If this fails to materialise, the economy could see a stronger second half to the year," he said.

Inflation rate remains higher than Bank of England target

James Brown, a partner and head of the UK consumer and retail practice at Simon-Kucher & Partners, said that, despite the CPI drop, the inflation rate in June not only represented the fifth consecutive month where it was above the Bank of England target, but also considerably higher than the 0.5 per cent rate in June last year."The current rate adds more than £50 extra a month to UK households’ monthly expenses covered by CPI compared to the same time last year, putting more pressure on holidays and summer outings budgets," he said. "The fall in the value of the pound last June has made foreign holidays much more expensive. But even those who say at home will feel the pinch."Whether families decide to register the children to a kids’ club or summer camp, or whether groups of friends meet for drinks, they will have to pay more for it than they did last year. The figures for June showed that fees for recreational and sporting services went up by 3.5 per cent and beer is 7.5 per cent more expensive than last year."

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Stephen Clarke, policy analyst at the Resolution Foundation, added, "The small fall in inflation is good news for struggling households, though with average pay growth barely hitting two per cent, pay packets will continue to shrink for the rest of the year at least."A government spokesman said, "While it is encouraging that inflation was lower this month, we appreciate that some families are concerned about the cost of living. That’s why we have introduced the National Living Wage, which is helping to boost earnings by £1,400 a year, and why we’ve cut taxes for millions of people to help them keep more of what they earn. We are also increasing our free childcare offer to help 400,000 working parents."For related news and features, visit our Enterprise section.

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