ANNUAL UK consumer prices index inflation dropped more sharply than expected last month, falling back to the Bank of England’s target of two per cent from 2.5% in June, official figures show.
According to a poll by Reuters, economists had expected annual CPI inflation would have declined to 2.3% last month. Economists yesterday voiced a belief that lower inflation was likely to be short-lived, with a renewed sharp rise expected, but pointed out the anticipated upward effects would in large part be temporary.
The drop in annual CPI inflation in July was driven by prices for clothing and footwear, and for computer peripherals such as routers and webcams and software, and video games. Package holiday prices are estimated to have fallen slightly between June and July.
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Clothing and footwear prices, overall, fell by 2% month-on-month in July, compared with a smaller decline of 0.7% between the same two months of last year.
There was an upward contribution to annual inflation in July from rising second-hand car prices.
Russ Mould, investment director of stockbroker AJ Bell, said: “This is good news for those fretting about rising prices but potentially raises some questions about the strength of the UK economic recovery.”
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Luke Bartholomew, senior monetary economist at Aberdeen Standard Investments, said yesterday: “Today’s decline in inflation is welcome but likely to be relatively short-lived as price pressures mount over the next few months.”
Setting out ASI’s forecast, he added: “In particular, the ending of the VAT cut for hospitality, an increase in energy prices and shortages in various sectors combine to push inflation well above the Bank of England’s target by the end of the year.
“However, it will be important for investors to look through this bumpy period, and not extrapolate a trend of much higher inflation, as many of those effects should be temporary, and allow inflation to start falling next year.”
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