UK inflation dropped to zero in June

UK inflation dropped down to zero again in June, suggesting that the Bank of England will wait a while before raising interest rates.

According to official figures released by the Office for National Statistics (ONS), consumer prices were flat during the period compared to 0.1 percent growth in May.

Analysts expected a reading of 0.1% in June.

The ONS said that the main contributors to the change were falls in clothing and food prices as supermarkets across the country continued to compete aggressively on prices as well as the start of summer clothing sales.

Core CPI, which excludes food, energy, alcohol, and tobacco costs rose at a seasonally adjusted rate of 0.8% in June, down from 0.9% the previous month.

Chris Williamson, chief economist at Markit, said:

“The data therefore raise questions over the whether underlying price pressures are really picking up to the extent than the Bank of England is anticipating. The Bank expects inflation to start rising in earnest later this year, primarily due to the impact of low oil prices phasing out of the annual comparisons, and reaching its 2.0% target by 2017.

“Attention therefore now turns to what’s arguably the more important wage growth data, published tomorrow. The Bank of England needs to determine whether pay growth will continue to accelerate as firms compete for staff, or whether low inflation will keep the overall rate of increase below levels that would normally worry the monetary policy committee into hiking interest rates.”

The Bank of England expects inflation will increase at the end of the year. The central bank’s target is 2 percent.


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