UK inflation drops to four-month low

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The UK Consumer Prices Index (CPI) grew by 1.6% in the year to July 2014, down from 1.9% in June, the Office for National Statistics (ONS) has revealed.

According to the ONS, falls in clothing prices provided the largest contribution to the fall in the rate; while other large downward effects came from the alcohol, financial services and food & non-alcoholic drinks product groups.

Conversely, the largest upward effect came from the transport group. As the ONS also said, the CPIH (not a National Statistic) grew by 1.5% in the year to July 2014, down from 1.8% in June.  The National Statistics status of CPIH has been discontinued pending work by ONS to investigate and improve the method for measuring owner occupiers’ housing costs in this index.

The news takes inflation further away from the Bank of England’s target of 2% inflation in order to rise interest rates.

However, as previously reported, average earnings in the UK rose by just 0.6% in Q2, according to previous data.

David Kern, chief economist at the British Chambers of Commerce (BCC), commented: “The welcome fall in inflation confirms that the increase in June was temporary and doesn’t signal a new upward trend. While wage increases remain very low and the pound is still relatively strong, we expect inflation to remain below the 2% target for the foreseeable future.”Although the recovery remains on track, it is still fragile and now is not the time to put it at risk with premature interest rate rises. We must nurture the business confidence we are seeing at present by giving businesses the security of working in a low interest rate environment.”

Other economists have echoed Kern’s words about the unlikely rise of interest rates by the BoE before 2015.



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