UK CPI inflation falls back to 1.6% in July, lower than expected
The UK's rate of inflation decreased during July and at a faster than was expected pace, reducing the pressure on the Bank of England to raise interest rates in the near term.
The consumer price index (CPI) grew by 1.6% in the year to July 2014, down from 1.9% in June according to the Office for National Statistics, reflecting a combination of falling commodity prices and intense competition.
The consensus estimate had been for an advance of 1.8%.
Inflation is now on a downward trend that could see CPI ease to as low as 1% by the end of the year, according to economist Sam Tombs at Capital Economics, as the effect of a strong pound filter through to retailers.
Tough competition in the clothing retail market led to clothing prices providing the largest contribution to the fall in the rate, with other large downward effects came from the alcohol, financial services and food product groups.
Upward price movements in the transport industry, partially offsetting, upward effect came from the transport group.
Tombs noted that the July data was "considerably weaker" than the 1.9% figure that had been expected by the BoE's Monetary Policy Committee in last week's Inflation Report and that he expected the committee to be surprised by inflation's weakness over the coming months.
He added: "The disinflationary effects of sterling's appreciation have not fed through fully to the shops yet. Sharp falls in wholesale energy prices mean that utility bills should hold broadly steady this winter. And the recent weakness of wages growth should keep a lid on price rises in the consumer services sector.
"So, while low inflation may not be sufficient to prevent the MPC from moving to "normalise" interest rates soon, we believe that a general environment of benign inflationary pressure will give the committee scope to raise them at an even more gradual pace than currently anticipated by the markets."
AB/OH