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Inflation makes surprise rise to 2.1 per cent in July

by: Emma Lunn
  • 14/08/2019
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Inflation makes surprise rise to 2.1 per cent in July
The UK CPI rate rose to 2.1 per cent in July, according to the Office for National Statistics (ONS).

 

The figure contradicted market expectations of a fall to 1.9 per cent, from the two per cent in June and pushes it above the Bank of England’s two per cent target for the first time since April.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was two per cent in July 2019, up from 1.9 per cent in June 2019.

Between June and July 2019, there were large upward contributions to the change in the CPIH 12-month rate from games, toys and hobbies, and accommodation services, where prices for both rose by more than a year ago, and from clothing and footwear, and other financial services.

There were offsetting downward contributions to change coming from transport services and, to a lesser extent, from domestic fuels principally electricity and gas.

 

Upward pressures

Emma-Lou Montgomery, associate director for personal investing at Fidelity International, said: “Today’s CPI inched just above the Bank of England’s target, hitting 2.1 per cent – reversing the trend we have seen over recent months.

“This change in direction was attributed largely to the prices for clothing and food. The decline in sterling is also a factor – as the weak pound could start to apply further upward pressure on prices in the coming months.

“In the short term, this news is a slight relief for savers who will feel less strain on their budgets as wages continue to outstrip inflation. Although yesterday’s earnings data offered some ointment to the wound, it is important to remember that the UK economy is far from out of the woods.

“With some speculation that the Bank of England will cut interest rates by the end of the year should there be a no-deal Brexit, it is key that savers prepare themselves now and get ahead of the game.”

Phil Smeaton, chief investment officer at Sanlam UK, said: “UK Inflation rates have shown incredible resilience, but the upward pressures are clear. Employment figures are strong, UK wage growth is at an 11-year high, and sterling weakness continues to push up the prices of imported goods.

“Consumers are pessimistic about their economic future, but prime minister Johnson is resolute in his belief that the UK economy will be ready to soar on 1 November. We are sure that Mark Carney is ready to stand by the prime minister and support his post-Brexit stimulus package.”

 

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