Published: Tue, July 18, 2017
Money | By Armando Alvarado

Cheaper fuel sees inflation fall to 2.6% in June

Cheaper fuel sees inflation fall to 2.6% in June

The annual pace of inflation slowed to 1.7 percent, again under the 1.9 percent forecast and down from 2.2 percent in the first quarter.

Higher vegetables prices pushed food inflation up 0.7 percent in the June 2017 quarter to 2.0 percent for the June 2017 year.

This was 0.15 percent points lower than the rate recorded in May, which stood at 16.25 percent. Its recent strengthening to levels not seen since last September has been partly down to increased expectations of a hike in Bank rate.

However, as you can see, food, furniture and household goods all got more expensive during June.

Inflation dropped back last month as the falling price of fuel and computer games eased the pressure on household spending power.

The BoE has so far chosen not to respond by raising rates, saying the Brexit hit to the pound is likely to be temporary.

However, inflation is still running ahead of average wage inflation, which is now stands at 2% (excluding bonuses).

The Reserve Bank had forecast in May that today's annual rate would come in at 2.1 per cent.

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The BoE is due to announce its next decision on interest rates on August 3.

However, the balance of the committee already appeared to favour holding policy, in line with the views of Bank governor Mark Carney despite a prediction that inflation would rise above three per cent.

Recreational and cultural goods, which includes computer games, was also driving overall prices lower after dropping by 0.1% on the month following a rise of 0.6% over the same period a year ago.

The fall was far bigger than economists had expected, pushing down the value of sterling against the U.S. dollar to $1.303 at the time of writing, undoing the gains of the past two sessions.

"Holidays were cheaper all round in the June quarter, with prices for accommodation services down 8.1 percent, and package holidays down 1.4 percent", Attewell said.

The ONS said a measure of consumer prices which includes a wider range of housing costs, the CPIH, edged down to 2.6 percent from 2.7 percent.

Prices in London alone grew by 3.0 percent, the second-slowest pace among all regions of the United Kingdom, adding to signs of a weakening of the housing market in the British capital since last year's Brexit vote.

Data on factory gate prices suggested that the most intense pressure on consumer prices is easing.

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