Inflation fall eases rates pressure
THE likelihood of a September interest rate rise receded today as official figures showed the UK's annual rate of inflation slowed to 1.4% in July, which was below City expectations. Economists expeced the Consumer Prices Index to fall to 1.5% from 1.6% in June.
The figures are critical to decision-making for the Bank of England‘s monetary policy committee. It has ordered five rises since November, taking the base rate from a 48-year low of 3.5% up to 4.75%, partly in bid to cool a booming property market.
However, the MPC's main stated aim is to control the future threat of inflation. The figure of 1.4% was safely below the Bank's target of 2%, easing pressure to order a second successive increase in rates next month.
Economists added that the Bank had been expecting inflation to ease in the short-term but rise in the medium-term. Analysts, therefore, still predict interest rates will rise to at least 5% by the year end.
The Retail Price Index, excluding mortgage repayments, which was the Government's preferred measure of inflation until last year, slipped back to 2.2% from 2.3%.
The main downward effect on inflation came from furniture prices where price discounting in the summer sales was much greater than a year ago - perhaps a sign that the nation's booming housing market is finally slowing.
The inflation rate was also lowered by food where overall prices fell. Offsetting effects were increases in the price of cable television subscriptions and package holidays in Europe, the Office of National Statistics said.
Further data released today pointed to rising interest rates taking their toll on High Street sales.
Lower levels of consumer confidence coupled with wet weather combined to reduce annual retail sales growth to 4.3% in July, down from 5% in June, according to a study by the British Retail Consortium (BRC) and accountants KPMG.
The BRC claimed rate rises had dampened consumer confidence.
All eyes at the MPC will now be on tomorrow's UK labour market report. The claimant count is expected to fall by 8,000 with the jobless rate holding at 2.7%. Average wage increases are expected to be unchanged at 4.3%.
THE US central bank, the Federal Reserve, is expected to raise the federal funds rate tonight by a quarter point. The move to 1.5% would represent the second rise, following a hike from a 46-year low of 1% in June.
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