Britain misses inflation target again

Britain’s inflation rate slowed for the third consecutive month in July, with the consumer price index (CPI) falling to 3.1% from June’s 3.2%.

Mervyn King
Mervyn King

Despite the fall, Mervyn King, the governor of the Bank of England, will have to write another letter to George Osborne, the chancellor of the exchequer, explaining why inflation is still above target.

The government’s target for Britain is defined in terms of CPI and is set at 2% or lower.

Monetary stability, which means stable prices as defined by the inflation target, is one of the core purposes of the Bank. Financial stability, its second core purpose, entails detecting and reducing threads to the financial system as a whole.

Britain has exceeded its inflation target for 42 of the past 51 months, prompting critics to question whether the Bank has abandoned its inflation target in favour of economic growth. (article continues below)

According to the Office for National Statistics, large downward effects came from transport, clothing and footwear, miscellaneous goods and services, as well as recreation and culture. Large upward effects came from food and non-alcoholic beverages, furniture household equipment and maintenance.

In its Inflation Report published last week, the Bank said the high inflation recorded in June was owing to temporary effects from increased oil prices, the restoration of the standard VAT rate of value added tax to 17.5% and the past depreciation of sterling.

Britain’s economy is likely to grow less than previously estimated as ongoing fiscal consolidation and tight credit conditions will hamper economic growth.

Meanwhile, the retail price index was 4.8%, down from 5% in the previous month.