June’s flat inflation dashes hopes of interest rate hike

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UK inflation throughout June remained flat at 2.4 per cent, sending the value of the pound diving to a 10-month low.

According to new data from the Office for National Statistics, inflation held steady for the second month in a row, coming in below average analysts’ expectations of 2.6 per cent.

This dashed hopes of an interest rate hike next month from the Bank of England, and sent the sterling dropping against the US dollar to close to $1.30 while government bond yields fell to their lowest level since May.

A rise in domestic gas an electricity prices had the largest upward impact on inflation, but this was offset by a 2.3 per cent drop in clothing prices thanks to summer sales, up from a 1.1 per cent drop in the same period a year earlier.

Games, toys and hobby prices also saw a drop of 0.4 per cent, driven by a significant drop in computer game prices.

“Markets had been pricing in around an 80 per cent chance the Bank would lift borrowing costs in August, but today’s inflation data combined with yesterday’s lacklustre wage growth figures could force policymakers into a rethink,” Hargreaves Lansdown senior economist Ben Brettell said.

“That said, output price inflation ticked up to 3.1 per cent and raw material costs jumped 10.2 per cent, so there are some signs inflationary pressure is building.

“There’s certainly a case for higher rates as soon as next month. But I think the decision is more finely balanced than the markets would have you believe.

“The Bank will be mindful of Brexit-related uncertainty, and may decide to wait for confirmation that the weak first-quarter growth figure was just a blip before raising borrowing costs.”

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