‘Falling inflation alleviates the squeeze on household finances – though pay is still shrinking in real terms for now. Last week’s labour market update from the ONS showed wages growing by less than inflation for a third consecutive month.’ – Ben Brettell, Hargreaves Lansdown
Britain’s inflation fell unexpectedly in June from a four-year high reached in the previous month. The Office of National Statistics reported that the country’s Consumer Price Index dropped 2.6% year-over-year, missing expectations for an unchanged reading of 2.9%, while the monthly rate slipped from 0.3% to 0.2% in the in June. The Core CPI, which excludes volatile items such as food and fuel, registered a weaker-than-expected reading of 2.4%, following May’s 2.6% figure. The surprise fall, mainly driven by lower prices of oil and certain recreational and cultural goods, was partially offset by a rise in prices of furnishings and furniture. The strong decrease in the value of the British Pound after Brexit raised costs of imported goods, suggesting that inflation would show at least 3% pace of growth this year. Though, the UK economy being heavily dependent on consumers is expected to face further effects of subdued spending due to outpaced wage growth. Moreover, the weakness in recent reports hinted that the Bank of England is less likely to raise interest rates in the near term.
