UK inflation ticks up in July, core inflation hits five-month high

British inflation edged up in July, official figures showed on Tuesday, helped by smaller discounts to clothing compared to this time last year, while core inflation hit a five-month high. 

PHOTO: BLOOMBERG

AUG 18, 20154:52 PM

[LONDON] British inflation edged up in July, official figures showed on Tuesday, helped by smaller discounts to clothing compared to this time last year, while core inflation hit a five-month high.

Consumer price inflation ticked up 0.1 per cent in July year-on-year after slipping back to zero in June.

Economists in a Reuters poll had expected inflation to stay flat at zero, after rising slightly in May and falling below zero for the first time since 1960 in April.

On a monthly basis, inflation fell 0.2 per cent in July, the figures from the Office for National Statistics showed. "The slight (annual) increase is mainly due to clothing, with smaller price reductions in this year's summer sales compared with a year ago," said ONS statistician Richard Campbell. "Food and motor fuel prices continue to fall and have helped stop a larger rise in the rate of inflation." A recent rise in sterling and fall in oil prices has curbed inflation in Britain.

In its latest economic outlook, the Bank of England stressed that these factors would push down inflation until at least the middle of 2016 and said the impact of the rise in sterling could persist even longer.

While low inflation has boosted Britons' purchasing power, it has also made it more difficult for the BoE to exit its ultra-easy monetary policy of recent years. A BoE official said on Sunday that waiting too long to raise interest rates could undermine Britain's economic recovery.

An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, rose to 1.2 per cent in July - the highest yearly increase since February - from 0.8 per cent in June.

BoE officials are increasingly looking at this measure to assess the timing of the first rate hike in over seven years, as it excludes more volatile items.

Data also released by the ONS on Tuesday showed that factory gate prices fell by 1.6 per cent in annual terms, compared with economists' predictions of a 1.5 per cent fall.

Separate data showed house prices rose 5.7 per cent in the year to June, up from 5.6 per cent in May.

Markets recently pushed back expectations for the timing for a rate hike after only one member of the rate-setting committee voted to increase interest rates, against expectations that two or more would do so.

REUTERS