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Inflation makes unexpected fall in July

Inflation makes unexpected fall in July
Date of Publication: Tuesday, 19 August 2014 10:10

The UK inflation rate suffered a larger-than-expected drop in July to 1.6% from 1.9% in June, the Office of National Statistics (ONS) said.

 

The ONS attributed the fall to lower rises in the cost of clothing, footwear, and food and drink (excluding alcohol).

 

The Consumer Prices Index (CPI) measure of inflation was expected to fall slightly in July, but surpassed expectations.

 

At 1.6%, it remains some distance above wage inflation, which showed marginal growth of just 0.6% in the June quarter.

 

However, it remains well below the Bank of England’s target rate of 2%, which will ease the pressure on the Bank’s monetary policy committee to raise interest rates.

 

Consumer confidence seems to be picking up gradually, according to the latest Spending Power Report from Lloyds Bank.

 

Confidence in the economy rose for the seventh consecutive month, while consumer confidence levels were also up in July as lower spending on gas and electricity and food and drink has boosted disposable income in the wake of low wage growth.

 

The fall in inflation offers some consolation for savers, who have been struggling to match inflation through their savings accounts without locking funds away for years at a time.

 

However, any delay to a base rate rise means that it will be longer before conditions normalise and savers begin to see a more substantial return on their deposits.

 

There was an unequivocal blow for commuters, however, after the government confirmed above-inflation rises to train fares with effect from January 2015.

 

Companies can set their January fare increases on regulated fares to 1% above July’s Retail Price Index (RPI) measure of inflation, which fell marginally to 2.5% from June.

 

Due to a ‘flex’ rule, companies can raise some of these fares by 2% above RPI - 4.5% - as long as they reduce others to keep the average at 1% above.

 

Keith McDonald

Which4U Editor

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Tuesday, 19 August 2014 10:10
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