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United Kingdom inflation unexpectedly falls and eases rate-hike fears

18 Julio 2017, 10:51 | Azura Castelo

A person using a petrol pump

A person using a petrol pump

ONS deputy national statistician Jonathan Athow said: "Today's fall in inflation is mainly due to drops in petrol and diesel prices".

Core inflation, which strips out volatile energy and food prices, was 2.4 per cent, down from the 2.6 per cent in May and also lower than the City consensus had expected.

Kate Smith, head of pensions at Aegon, said: "Rapidly rising prices are nearly always bad news for consumers, particularly pensioners on a fixed income, who are clearly having to go through a bit of belt tightening at the moment".

The drop offers "some respite for cash-strapped consumers", says The Guardian, but with pay growth at two per cent, a 2.6 per cent rate still means a cut to living standards this month.

The main downward pressure on the cost of living came from fuel, which saw the fourth consecutive month of falling prices, dropping 1.1% between May and June.

However, inflation remains higher than wage inflation, which is now running at 2 per cent.

Food prices fell 0.2 per cent on the month.

A man counts some money

The FTSE 100 edged lower by 0.19% or 13.91 points to finish at 7,390.22, while the pound was down 0.82% against the euro at 1.1280 and flat versus the dollar at 1.3053.

"We continue to believe that an interest rate rise before the end of the year is a distinct possibility".

He added: "Households experience very different inflation pressures and so far this year rising prices have borne down most heavily on the poorest".

Banks had been revising down their expectations of the annual inflation rate in recent weeks to between 1.8 and 1.9 per cent - but hadn't expected the quarterly rate to drop to zero.

Last month, three Bank of England officials called for United Kingdom interest rates to rise amid concerns over rising inflationary levels.

Ben Brettell, senior economist at Hargreaves Lansdown, said the surprise figures substantially reduced the likelihood of an August interest rate rise.

"If this fails to materialize the economy could see a stronger second half to the year", he said. Earnings, excluding bonuses, rose by 2% year-on-year in May, but when the impact of inflation is factored in, real weekly wages fell by 0.5% compared with a year earlier. This is tightening the squeeze on United Kingdom households, which is bad news for an economy that relies on confident consumers spending on goods and services'.



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