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August 16, 2017

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UK inflation steady, easing rate hike bid

CONSUMER price inflation in Britain unexpectedly held steady in July at an annual rate of 2.6 percent, official figures showed yesterday, in a development that may ease pressure on the Bank of England to raise interest rates at a time when the economy has slowed amid uncertainty over the country’s exit from the European Union.

The reading from the Office for National Statistics was short of economists’ expectations for 2.7 percent, largely because lower fuel costs helped offset a wide array of price increases. The news saw the pound fall as traders priced in a lower likelihood of any imminent increase in rates.

Homeowners on flexible mortgages and consumers with increasing debt have been on guard for a possible rise in interest rates as inflation has risen above the BOE’s target of 2 percent. A minority of rate-setters at the central bank have in the past few months voted in favor of raising the benchmark interest rate from the record low of 0.25 percent to keep a lid on price increases. Higher rates could be an unappetizing prospect for an economy that’s slowed down this year and has to steer the choppy Brexit waters ahead.

Inflation in Britain has risen sharply over the past year since the country voted to leave the European Union, a decision that caused a fall in the pound of about 15 percent and pushed up prices for imports like oil and food. Inflation, which hit 2.9 percent in May, was barely positive when Britons cast their votes in the June 2016 referendum.

The rise in inflation has hurt living standards as price increases outstrip annual wage rises, which are running at below 2 percent.


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