Inflation holds firm as retail offsets energy and fuel hikes

ONS releases inflation figures for June

An interest rate rise in August is in doubt after inflation unexpectedly undershot forecasts last month.

Average weekly earnings rose by 2.5 percent on the year in the three months to May, slowing from the previous three month period when they grew by 2.6 percent and the weakest since the three months to November, the Office for National Statistics said on Tuesday.

"The pound dropped sharply on the (inflation) news, losing around three-quarters of a cent against the dollar as traders revised their bets on an August rate rise", noted Ben Brettell, senior economist at Hargreaves Lansdown.

"However, gas and electricity and petrol prices all rose, with consumers seeing the highest price at the pump for almost four years, with inflation remaining steady overall", he added.

Mike Hardie, its head of inflation, explained: "Consumers have been feeling the benefit of the summer clothing sales, and computer game prices have also fallen".

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We received another clear sign yesterday that a tightening of monetary policy in the Euro-area remains a long way off, after the rate of core inflation in the Eurozone undershot expectations once again.

Households were also squeezed by gas and electricity costs, which rose 2.5% and 2.2% respectively, month on month.

The surprise figures knocked the pound to its lowest level against the U.S. dollar since September, as traders considered whether it would cause a pause among the Bank of England's rate-setting Monetary Policy Committee (MPC) who are expected to consider raising interest rates from 0.5% to 0.75%. "The large downside surprise adds more uncertainty around what had until now appeared a near-certain August rate hike", JPMorgan economist Allan Monks said.

This is the third month in a row that inflation has stalled at 2.4% and the 17th consecutive month it has exceeded the government's target of 2%.

But some relief emerged for consumers on the high street, where clothing discounts, most strongly felt in men's apparel, left more cash in shoppers' wallets.

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Upward pressure on prices came from motor fuels, domestic gas and electricity but this was offset but falling prices for clothing and games, toys and hobbies. Multiple MPC members, including chief economist Andy Haldane and governor Mark Carney, had signalled that a rate hike will likely be necessary soon because of rising inflationary pressures.

"Transport [as a contributor to headline CPI] increased from 0.7 of a percentage point in May 2018 to 1.0 percentage points in June".

Mr Tombs was pointing to figures which showed that BRC's non-food shop price index jumped by 0.9 per cent month on month, marking the biggest June increase since the BRC's records began in 2006. Month-on-month, output prices gained 0.1 percent from May, when it rose by 0.5 percent.

The U.S. dollar index, which measures the greenback's strength against a basket of six major currencies, was up 0.34% to 95.04, within close reach of the eleven-month high of 95.25 reached in late June.

House prices also increased the slowest in five years according to the ONS, with flat prices staying the same for a year.

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