UK inflation expected to ease slightly in July

The Office for National Statistics (ONS) is scheduled to announce the UK inflation rate this morning, with analysts expecting the annual rate to be around 3.1% - representing the eighth consecutive month that it has been above the Bank of England’s target of 2%.

Last month, the ONS reported Consumer Price Inflation (CPI) eased to 3.2% in June - down from 3.5% in May.

Inflation has remained stubbornly high over recent months and at the 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 soaring 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.

In its previous inflation report in May, the Bank said inflation would remain above the 2% target for the remainder of 2010.

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

In the meantime, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, is expected to fall to 4.9% from 5%.

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