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Inflation falls to 1.6%

The annual rate of UK inflation rate fell more than expected in July as the cost of clothing, footwear, food and non-alcoholic drinks eased.

The Office for National Statistics (ONS) said Consumer Price Index (CPI) inflation fell to 1.6% from 1.9% a month earlier.

But CPI remains well above average wages which grew by just 0.6% in the three months to June.

The Retail Prices Index, which includes housing costs, fell to 2.5% from 2.6%.

Economists had expected CPI inflation to fall to 1.8% in July.

The ONS said consumer price inflation for the three months to the end of July was 1.7%.

It means the Bank of England remains under little pressure to raise interest rates in order to keep inflation at or below its target rate of 2%.

The pound fell against both the dollar - hitting its lowest point against the dollar since April - and the euro following the release of the inflation figures.

Last week, Bank policymaker professor David Miles told the BBC he believed inflation was likely to remain below target for some time to come.

He added that this was a "very good news" as it meant the Bank was not "going to be pushed into raising interest rates sharply or immediately because the inflation outlook remains pretty subdued".

Bank governor Mark Carney, however, has been accused to sending out mixed messages on when an interest rate rise may occur.

Following publication of the Bank's quarterly inflation report last week Mr Carney said he remained concerned about poor wage growth. Average wage rises are an indicator of how much "spare capacity" remains in the economy.

Spare capacity is the Bank of England's measure of the extent to which the UK economy is underperforming, as a result of a lack of business investment either in hiring new staff, technology or machinery. It has become one of the key measures that will determine when interest rates begin to rise.

On Wednesday the minutes of the August meeting of the Bank's Monetary Policy Committee (MPC) will be published, with analysts looking for any sign of a split vote on the nine member panel over whether to raise interest rates.

The MPC has voted unanimously on interest rate policy for the last three years.

Source : BBC News

19 August 2014
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