Static inflation puts August rate rise in doubt

Wage growth for British workers

But official figures yesterday showed inflation held steady at 2.4 per cent in June, confounding predictions it would rise to 2.6 per cent.

"As a base case, we expect the RBI to remain cautious and possibly deliver another 25 bps rate hike in August given risks of further broad-based increase in core inflation, impact of minimum support price (MSP) hikes, and lower crop production given the progress of monsoon and sowing pattern", the report said.

Inflation remained at a one-year low in June and did not rise in line with expectations, raising questions over whether the Bank of England will lift interest rates next month.

The pound fell against the dollar following the surprise reading, slipping 0.60% to $1.3037.

Mike Hardie, its head of inflation, explained: "Consumers have been feeling the benefit of the summer clothing sales, and computer game prices have also fallen".

Ruth Gregory, senior United Kingdom economist at Capital Economics, a consultancy, said that a move next month remains "more likely than not", but said that CPI will likely fall back later in the year.

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"However, gas and electricity and petrol prices all rose, with consumers seeing the highest price at the pump for almost four years, with inflation remaining steady overall".

While it said it was normal for prices to drop at this time of year due to the start of the summer sales season, the ONS said the fall was the largest since 2012 and "the effect came mainly from men's clothing".

Today's data raises the prospect of the Bank of England raising interest rates at a time when inflation has stagnated, wage growth remains tepid, the United Kingdom faces political chaos at home, and the prospect of a damaging trade war hangs over the global economy.

She added: "Lower inflation might make it easier for the MPC to raise rates as it will relieve the pressure on consumers' incomes".

But Ben Brettell, Senior Economist, Hargreaves Lansdown, said that June's figure meant it is not "a done deal".


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