Cameron shrugs off surprise rise in UK inflation

Group Business Editor

Wednesday 15 August 2012

SCOTTISH Chambers of Commerce chief executive Liz Cameron has shrugged off a surprise rise in annual UK inflation, citing the overall downward trend over the past 10 months.

HIGH STREET: Retailers brought summer sales forward to June due to the bad weather. Picture: Martin Shields

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ian mcconnell business editor

The Office for National Statistics said yesterday that annual UK consumer prices index inflation rose from 2.4% in June to 2.6% in July. The City had forecast a fall to 2.3%, which would have taken the rate closer to the Bank of England's 2% target.

The rise in annual CPI inflation was in large measure the result of the smallest month-on-month drop in clothing and footwear prices for any July since comparable records began in 1996.Clothing and footwear prices fell 2.6% on average between June and July. They had tumbled by 4.2% between May and June. Prices of clothing and footwear had dropped by 3.5% between June and July last year. The ONS attributed the altered pattern this year to decisions by retailers to bring forward summer clearance sales to June. It cited the smaller fall in clothing and footwear prices last month, compared with July 2011, as one of two key upward influences on the annual CPI inflation rate.The ONS noted the total fall in clothing and footwear prices between May and July this year was in line with the decrease over the same period of 2011.The other big upward influence on annual CPI inflation came from transport, with air fares rising by 21.7% last month but by only 9.8% a year earlier and with second-hand car prices falling by only 1% this July but by 3.1% in the same month of 2011. The rise in air fares was the biggest June to July increase since 2004, with flights to European destinations cited by the ONS as the main factor.Annual CPI inflation tumbled from 2.8% in May to 2.4% in June. It stood at 5.2% as recently as last September. And the ONS noted that, with the exception of the June figure, the July inflation rate was the lowest since late 2009.Ms Cameron said: "Inflation was a little lower than expected in June and a little higher than expected in July. The important thing is that the overall trend of the past 10 months has been downward and, with producer prices continuing to fall, we see no reason why this downward trend will not continue for the rest of the year, and we fully expect inflation to fall back toward 2% during that time."Howard Archer, chief UK economist at consultancy IHS Global Insight, said the rise in annual CPI inflation in July did not affect significantly the prospects for monetary policy. He expects the Bank of England to increase its quantitative easing programme by a further £50 billion to £425bn in the fourth quarter of this year. QE is aimed at stimulating activity by boosting money supply through the purchase of Government and corporate bonds, financed through the issuance of central bank reserves.Mr Archer said: "It is important not to read too much into one month's inflation figures, particularly as early discounting this year has distorted the monthly patterns, causing a larger-than-expected inflation drop in June but then an unanticipated rise back up in July. The overall trend...remains down."He added: "Nevertheless, the move back up in consumer prices inflation in July does raise concern that it may not come down as quickly as hoped for over the coming months, particularly as oil prices have firmed anew and higher grain prices could put upward pressure on food prices over the coming months."Inflation on the old all-items retail prices index measure rose from 2.8% in June to 3.2% in July.

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Cameron shrugs off surprise rise in UK inflation

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