Inflation falls to 4.2% in June
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The UK inflation rate fell unexpectedly in June to 4.2%, down from 4.5% in May, according to the Office for National Statistics.
The Retail Prices Index measure of inflation - which includes mortgage interest payments also fell, from 5.2% to 5%.
The annual rate of consumer price inflation excluding indirect taxes such as VAT was 2.7%, down from 3.0% in the previous month.
The most significant negative contribution to the change in the annual rate of inflation came from recreation and culture, which fell by 0.9% between May and June this year compared with a rise of 0.5% between the same two months a year ago.
Between May and June, there was downward pressure on the price of games, photographic equipment, books and audio-visual equipment.
Scott Corfe, economist at the Centre for Economics and Business Research, says today’s announcement will take some pressure off the Bank of England, which has faced criticism for being too complacent over the issue of inflation, amidst ongoing concerns about the Bank losing credibility over its commitment to a 2.0% central target for CPI annual growth.
He says: “Still, inflation hawks will continue to point to the fact that inflation remains over double the Bank’s central target and that there are gas and electricity price rises in the pipeline later this year, which could push price growth back up.
“The latest economic data continues to paint a bleak picture for the UK economy; big brand retailers have announced shop closures and profit warnings, while the latest Markit/CIPS purchasing managers’ index data continue to point towards lacklustre growth.
“The preliminary estimate for GDP growth in Q2 2011 is likely to be extremely weak and, in our view, this gives the Bank of England more than enough rationale for keeping interest rates on hold this year.
“Cebr expect inflation to drop sharply in 2012 as the effects of January’s VAT rise drop out of the annual comparison and commodity prices show signs of stabilising - giving the Bank of England room for keeping monetary policy looser for longer.”
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Readers' comments (1)
Anonymous | 12 Jul 2011 3:12 pm
whilst my grasp of economics is fairly basic, it seems obvious (to me) that the real reason for inflation increasing has not been consumer spending but becuase of the price of commodities such as flour and oil. a loaf of bread or a kilo bag of pasta is dearer now than last year, yet i still have to buy them. most people i know make their own sandwiches to take to work and a 'starbucks' is now regarded as a treat rather than the fashion accessory it has become. People have genereally tightened their belts (i've had to make extra notches !!) without the need for interest rates to rise to 'curb spending' inflation going up does not mean we are being lavish nor deos inflation going down mean we are being frugal - it is what it is......
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