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July 12, 2005    

UK inflation reaches 2 percent

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by Brian Turner
UK inflation reaches 2 percent

Inflation in the UK hit a seven-year high of 2.0 percent in June, right on the Bank of England’s target, up from 1.9 percent in May.

Food, especially fruit and meat, clothing, and shoe prices helped the rate of inflation to this seven-year high, while higher prices for furniture and household goods and a drop in currency exchange rates had a smaller effect.

Declines in prices of goods such as computers and DVDs helped the inflation rate from going any higher.

Analysts do not expect this on-target inflation to make the Bank of England back away from an expected interest rate cut in August.

The UK inflation rate is generally in line with rates in Europe, where interest rates are also expected to decline in the near term.

Meanwhile, the Retail Prices Index remained unchanged in June due to housing-related costs that do not affect the consumer index, and core inflation retreated to 1.5 percent in June, from 1.6 percent in May.

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