UK inflation eases to 3.2% in June

| July 13, 2010
”UK

The Office for National Statistics (ONS) has today announced Consumer Price Inflation (CPI) eased further to 3.2% in June – down from 3.5% in May.

However, the rate was slightly higher than the 3.1% economists expected but has eased from the 17-month high of 3.7% in April.

While the level still far exceeds the 2% target, Mervyn King of the Bank of England, has previously reiterated that CPI will fall the target before the end of the year.

In the meantime, on a monthly basis, CPI rose by 0.1%.

Meanwhile, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, also eased to 5% in June from 5.1% in May. Economists had expected RPI to slow to 4.9%.

The CPI inflation rate is a benchmark for the Bank of England’s Monetary Policy Committee (MPC) but last week, the Committee elected to keep UK interest rates on hold at the historically low level of 0.5% for the 17th consecutive month.

However, inflation has remained stubbornly high over recent months and at June’s interest rate meeting, policymaker Andrew Sentance voted for rates to rise to 0.75% from their current historic low of 0.5%.

But Mr King has already dismissed fears that soaring inflation would demand a significant rise in interest rates in the months ahead.

In related news, yesterday the ONS reported the UK economy grew by 0.3% in the January to March period – unchanged from the previously estimated figure, but marginally higher than the first estimate of 0.2%.

Analysts had expected GDP to remain unchanged in the first quarter but many economists believe that economic growth will fall back over the latter half of the year as austerity measures kick in – introduced to deal with Britain’s record deficit of £155 billion.

Meanwhile, yesterday, one of the MPC members Adam Posen, said Britain was at risk of returning to recession.

In an interview with Newcastle-based regional newspaper, The Journal, Mr Posen said there is a possibility of slipping back into recession because of “a lot of drag on the economy, with the problems of the euro zone and the public sector contraction in the UK.”

He added: “However, the recovery has been under way for almost a year, although it has been slow. We hope it will continue but it cannot be guaranteed.”

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