Holidays and lower house prices slow British inflation

BRITISH inflation unexpectedly slowed in June after the cost of overseas holidays fell and house prices rose

Retail prices excluding mortgage-interest payments, or RPIX, the Britain’s main gauge of inflation, rose 2.8% from a year ago, the lowest gain since January and down from 2.9% in May, the government said.

Economists had predicted an annual rate of 3%. From the previous month, prices fell 0.1%.

“There’s no need to worry about inflationary pressures,’ said Mike Taylor, an economist at Merrill Lynch & Co. “For the time being, the focus globally is about avoiding deflation.’ Inflation has been above the Bank of England’s target of 2.5% for eight months.

In May, the bank said it expects the inflationary pressure from housing and oil costs to diminish by early 2004. Policymakers cut their benchmark rate last Thursday for a second time this year, citing a hesitant global economic recovery.

The cost of holidays outside Britain fell in June, especially those booked in advance to European destinations. House prices rose by less than a year ago, helping lower the annual inflation rate.

Inflation will probably slow further in the coming months as house-price gains ease, economists said.

House prices rose last month at the slowest annual pace in a year, according to Nationwide Building Society, Britain’s fifth-biggest mortgage lender.

House-price inflation slowed for a third month in June, said HBOS Plc, the nation’s biggest mortgage lender.

British interest rates will probably remain at 3.5%, the lowest since 1955, through the first quarter of next year, according to a survey of 23 economists conducted on Friday.

Chancellor Gordon Brown plans to adopt the HICP gauge, which is used by the European Central Bank, as soon as November.

On the HICP measure, Britain has one of the lowest inflation rates in Europe. In the euro economy inflation was 2% in June.