UK Inflation Falls to 1.6%

The official rate of inflation has fallen lower than expected, providing respite to the Monetary Policy Committee who came under fire when inflation jumped last month

Emma Wall 19 August, 2014 | 10:21AM
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UK inflation has fallen to 1.6% in July, down from 1.9% the previous month. This fall was greater than expected among economists, but provided some respite for the Bank of England’s Monetary Policy Committee who came under pressure last week when it was revealed wage inflation had fallen while the cost of living was rising.

This means the Bank can comfortably continue with plans not to raise interest rates until next year.

As long as inflation remains benign, the central bank will also have leeway to raise interest rates slowly and gradually, when they decide the time has come to do so, explained Tom McPhail of stockbrokers Hargreaves Lansdown.

Vanessa Owen, LV= Head of Annuities and Equity Release said the fall in inflation was welcome news for those households concerned about the rising cost of living.

“This is particularly important for retirees who are often hit hardest by rising inflation as this segment of society spends a considerably higher proportion of their disposable income on bills, such as electricity and less on luxury items,” she said.

Following the announcement the pound fell against the US dollar and the euro, a continuation of recent poor performance.

“Sterling has been fallen for six consecutive weeks alongside front-end bond yields, suggesting markets have been trimming tightening bets for some time now,” said Ilya Spivak, Currency Strategist at DailyFX.

“Such one-sided price action warns that big-splash volatility risk may be asymmetrically tilting to the upside in the near term.”

House price data from property website Rightmove was also released today and revealed that homes had fallen 2.9% in the month of July. The biggest falls came in London where property prices dropped 5.9%. The monthly falls could simply be due to natural seasonal fluctuations, and annually the Righmove Index is up 5.3%.

House builder Persimmon (PSN) this morning posted excellent results, revealing a 57% jump in pre-tax profits, totalling £208.9 million for the first half of 2014, up from £132.9 million for the firsts six months of last year.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Persimmon PLC1,459.50 GBX-0.51Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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