UK CPI slows but still above target
By Sumeet Desai and David Milliken |
August 18, 2010, Wednesday
|
Print Edition
Print Edition
BRITISH consumer price inflation slowed in July but as expected remained above 3 percent, forcing a third open letter from the Bank of England this year to explain why inflation is still above target.
The Office for National Statistics said that the annual CPI rate slowed to 3.1 percent from June's 3.2 percent.
That was the lowest since February but the eighth consecutive month that it has exceeded the BoE's 2 percent target.
Gilt futures were little moved on the data, which is broadly in line with the slowdown implicit in the BoE's quarterly Inflation Report published last week, and boosts expectations that the BoE will keep interest rates on hold well into 2011.
"The Governor will be able to play down these figures. Were it not for January's VAT rise, then inflation would most likely be below target," said Andrew Goodwin, senior economic advisor to accountants Ernst & Young.
Under the BoE's remit, Governor Mervyn King has to write an open letter to the government when inflation is more than 1 percentage point above or below target. He then has to write a new letter if inflation is still more than a percentage point away from target three months later.
King has previously written letters in February and May this year and each time blamed one-off factors for the overshoot, such as a January 1 rise in value-added tax as well as a jump in oil prices and sterling weakness.
The Office for National Statistics said that the annual CPI rate slowed to 3.1 percent from June's 3.2 percent.
That was the lowest since February but the eighth consecutive month that it has exceeded the BoE's 2 percent target.
Gilt futures were little moved on the data, which is broadly in line with the slowdown implicit in the BoE's quarterly Inflation Report published last week, and boosts expectations that the BoE will keep interest rates on hold well into 2011.
"The Governor will be able to play down these figures. Were it not for January's VAT rise, then inflation would most likely be below target," said Andrew Goodwin, senior economic advisor to accountants Ernst & Young.
Under the BoE's remit, Governor Mervyn King has to write an open letter to the government when inflation is more than 1 percentage point above or below target. He then has to write a new letter if inflation is still more than a percentage point away from target three months later.
King has previously written letters in February and May this year and each time blamed one-off factors for the overshoot, such as a January 1 rise in value-added tax as well as a jump in oil prices and sterling weakness.
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