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UK inflation dips to 3.1% in July

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by Kay Mitchell

The Office for National Statistics (ONS) has today announced Consumer Price Inflation (CPI) slipped to an annual rate of 3.1% in July – down from to 3.2% in June.

The latest figure, which was widely expected by analysts, represents the eighth consecutive month that inflation has been above the Bank of England’s target of 2%.

Meanwhile, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, also fell to 4.8% in July, from 5% in June.

Inflation has remained stubbornly high over recent months and at the Bank of England’s last two interest rate meetings, policymaker Andrew Sentance voted for rates to be lifted from their current historic low of 0.5% – where they have been since March 2009.

The CPI inflation rate is a benchmark for the Bank’s Monetary Policy Committee (MPC) but Mervyn King, the Bank’s Governor, has already dismissed fears that higher inflation would demand a significant rise in interest rates in the months ahead.

Last week, presenting the bank’s Quarterly Inflation Report, Mr King said inflation will fall below its target of 2% by the end of 2011.

The recent decision to hike VAT to 20% next year by the coalition Government will undoubtedly keep inflation higher, said the Bank.

Meanwhile, Mr King will now have to writer a letter to Chancellor George Osborne (his third this year) to explain why inflation remains above target.

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News posted: August 17, 2010

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