HOUSEHOLD finances remained under intense pressure in July as annual UK consumer prices index inflation stayed at 2.6 per cent, official figures have shown.
The inflation data, published yesterday by the Office for National Statistics, signalled a continued decline in real wages.
However, given the sharp slowdown in UK growth this year, economists believed the fact that inflation did not climb higher in July made it more likely the Bank of England would continue to hold base rates at a record low of 0.25 per cent.
Economists had predicted annual CPI inflation, which was only 0.3 per cent in May last year ahead of the Brexit vote, would have risen to 2.7 per cent in July. Inflation has been fuelled by sterling’s post-Brexit vote tumble.
Prices for food and non-alcoholic beverages, clothing, household goods, and gas and electricity all exerted upward pressure on annual CPI inflation last month. This was offset by a fall in motor fuel prices in July.
Annual CPI inflation remains well above the two per cent target set for the Bank by the Treasury.
Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “Although UK inflation has come in lower than forecasts anticipated, it remains higher than [in] other major economies.
“We expect inflation to head upwards in the short term as the costs of importing raw materials continue to pass through supply chains, peaking at three per cent later on in the year.”
However, she saw the Bank of England’s Monetary Policy Committee having “enough scope to keep interest rates on hold over the near term”.
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said of the 2.6 per cent annual CPI inflation rate for July: “It will still highly likely have been above pay growth, thereby resulting in a further drop in consumers’ real earnings.”
He noted that annual average earnings growth had been 1.8 per cent in the three months to May.
Mr Archer said: “There is now a very real chance that UK inflation will dodge reaching three per cent in the final months of the year, although there could be a limited rise in the near term as sterling’s past sharp drop may not have fully fed through.”
On the new CPIH measure, which comprises CPI plus owner-occupier housing costs, inflation was also unchanged at 2.6 per cent in July. Annual inflation on the old all-items retail prices index measure rose from 3.5 per cent to 3.6 per cent.
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