Surprise as UK inflation stays the same
It was expected that the Consumer Prices Index (CPI), a key measure of inflation, was to fall in July.
However, the CPI has remained the same at 1.8%, just slightly below the Bank of England’s target of 2%.
This time last year, CPI hit 5.2% (a 16-year high), driven by high oil and food prices.
Meanwhile, another surprise came as the Retail Prices Index (RPI) (which includes mortgage costs) unexpectedly rose to -1.4%, from -1.6%, revealed the Office for National Statistics.
The RPI rate has declined rapidly over the last 12 months as the Bank of England cut interest rates to 0.5% – the lowest level since the Bank was established over 300 years ago.
Meanwhile, the Bank of England’s Governor, Mervyn King, believes the CPI will fall to a level of 1% or lower over the next six months, as the economic downturn hits demand and sends prices lower.
Mr King will have to write to Chancellor Alistair Darling later this year explaining why inflation has fallen below the target.
Many analysts expect that the halt in the downward spiral of inflation will only be temporary.