UK Inflation Reduction Reduces Likelihood Of Interest Rate Rise

The possibility of an interest rate rise in the UK this year has become more remote after figures we…

The possibility of an interest rate rise in the UK this year has become more remote after figures were published revealing that the rate of inflation dropped in July to a greater extent than had been anticipated.

The consumer price index fell to 1.6 per cent from 1.9 per cent in June, marking the seventh month in a row that annual inflation has registered below the Bank of England's 2-per-cent target, according to the UK Office for National Statistics data. The prices of alcohol and food contributed significantly to the fall.

Economic commentators expected a smaller reduction – about 1.8 per cent.

James Knightley, economist from ING, stated:

"On the face of it this supports an on-hold stance from the Bank of England. The combination of sterling strength (making imported goods cheaper), along with weak wage growth and lower energy prices, which are limiting business cost growth, means inflation looks set to remain contained for now.

"This further eases the pressure on the Bank of England to consider near-term interest rate rises and pushes the balance more in favour of a delay to rate hikes versus our current November official view for the first policy tightening move."