Inflation falls to 1.6% in July

Inflation fell to growth of 1.6 per cent in the year to July 2014, according to the Office for National Statistics.

This is a fall of 0.3 percentage points from the 1.9 per cent growth rate in Consumer Prices Index recorded in June.

As a result, this falling inflation puts less pressure on Bank of England governor Mark Carney who had set a target in place of 2 per cent inflation. 

According to the ONS falls in clothing prices accounted for the largest contribution in this rate fall for July. Other downward impacts came from alcohol, financial services and food product groups. 

The largest upward effect which was partially offsetting came from the transport sector during the month.

Capital Economics chief UK economist Samuel Tombs sees this fall back of inflation putting it on track to end as low as 1 per cent by the end of the year. 

Noting that July’s figure is “considerably” weaker than the 1.9 per cent figure anticipated by the BoE’s Monetary Policy Committee in its inflation report last week, Tombs expects the MPC to be surprised by inflation weakness over the coming months.

He says: “The disinflationary effects of sterling’s appreciation have not fed through fully to the shops yet. Sharp falls in wholesale energy prices mean that utility bills should hold broadly steady this winter. And the recent weakness of wages growth should keep a lid on price rises in the consumer services sector.

“So, while low inflation may not be sufficient to prevent the MPC from moving to ’normalise’ interest rates soon, we believe that a general environment of benign inflationary pressure will give the committee scope to raise them at an even more gradual pace than currently anticipated by the markets.”