Pressure on the Bank of England to raise interest rates eased today as UK inflation showed an unexpected fall in June.
The Consumer Prices Index (CPI) fell to an annual rate of 4.2% in June, the Office of National Statistics (ONS) said, against consensus City forecasts of no change from May’s figure of 4.5%.
Encouragingly for the Bank, there was also a sharp fall in core inflation, which dropped to 2.8%, the lowest figure since last November.
There were also reductions in the broader measures of inflation that include house costs, with the Retail Price Index (RPI) falling from an annual rate of 5.2% to 5% and the adjusted number, RPIX, falling to 5% from 5.3%.
The lower inflation number will be a relief for the Bank of England, which has been under pressure to raise interest rates to control rising prices, even though recent signs have suggested the economic recovery is stalling.
The Bank has argued there is little sign of an inflationary spiral in the UK but, despite this surprise fall, it is the 19th month in a row that inflation has exceeded the Bank of England’s target of 2%.
Month-on-month, the CPI fell by 0.1 percentage points, the first fall in prices between May and June since 2003.
The ONS said a sharp fall in prices of games, computer consoles, and high street electrical products such as televisions and digital cameras outweighed another rise in food prices.
Recreation and culture, which includes games and hobbies, saw prices fall by a record 0.9 percentage points. Another significant faller was clothing and footwear as summer sales began early, especially in women’s shoes and fashions.
Food and alcohol continue to rise, with prices 0.9 percentage points higher over the month and increases across the board but especially in bread, cereals, meat, milk, cheese and eggs, squeezing household incomes even harder.