Inflation falls unexpectedly in June

Inflation dropped

Inflation has dropped for the first time since last October, coming below analysts‘ predictions at 2.6 per cent, compared to May‘s 2.9 per cent.

The Office for National Statistics revealed this morning that inflation, expected to match May‘s 2.9 per cent, eased thanks to dropping fuel and computer game prices.

Recreational and cultural goods, which include computer games, saw a 0.1 per cent drop after rising 0.6 per cent a month earlier, helping to pull prices down overall.

The results bear significance as they will take some of the pressure off the Bank of England to raise interest rates to tackle rising prices.

It will also take some of the pressure off consumers, who saw annual total pay in real terms drop to its lowest level since 2014 in the three months to May.

READ MORE:  Sunny June saw “welcome pick-up to sales growth” amid inflation warnings

“The Bank of England‘s rhetoric has taken an increasingly hawkish tone in recent weeks, with Mark Carney himself saying at the end of last month that “some removal of monetary stimulus is likely to become necessary,” Hargreaves Lansdown‘s senior economist Ben Brettell said.

“Chief economist Andy Haldane also indicated he might support a rate rise this year. However if today‘s pullback in inflation marks the start of a sustained decline, the pressure on the Bank to raise rates will ease.

“If inflation continues to moderate, this could bode well for economic growth – the UK economy is heavily reliant on the consumer, and economists had expected falling real incomes to eventually translate into lower retail sales. If this fails to materialise the economy could see a stronger second half to the year.”

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