Inflation level defies forecasts and remains stable for third month running

Inflation remained at 2.4% in June, for the third month running, confounding expectations of a rise to 2.6%, the Office for National Statistics revealed today.

Summer sales are believed to have weighed on inflation levels, after clothing prices, particularly on men’s fashion, were cut.

This means that wages remain above inflation, despite pay growth slowing to 2.7%.

The pound fell against the dollar following the surprise reading, slipping 0.60% to $1.3037.

Laura Suter, personal finance analyst at Manchester investment platform AJ Bell, said: “The latest inflation figures for June have surprised everyone by showing no change on the previous month, with inflation standing at 2.4%.

“This keeps it at the lowest level for 12 months and comes despite expectations from many that the rate would jump to 2.6% in June, on the back of higher fuel and energy prices.

“As it was, fuel and energy costs rose but the effects of this were dragged down by falls in the price of clothing, games, toys and hobbies.”

She added: “The figures for wage inflation were released this week, and showed average weekly wages grew by 2.5% on the year over the past three months. This marked the lowest figure for six months and shows people’s pay packets are only growing by slightly more than inflation.

“Both these figures together will make for tougher reading for the Bank of England’s rate setting committee when they meet next month, with some predicting the figures mean that a mooted interest rate rise will be put on the back burner.”

She said: “As has been the case for a long time, inflation is still hitting cash savers.

“Data from Moneyfacts shows that no easy-access savings account is matching the current high inflation rate – meaning the spending power of money left in cash savings is being eroded at a rapid rate.

“Cash savers need to hunt around for better deals rather than leaving their savings dwindling in accounts paying poor rates.”

Andrew Sentance, senior economic adviser at PwC, said: “UK CPI inflation remains steady at 2.4%, but it is still above the 2% target and is likely to be stuck close to 2.5% over the summer.

“The gap between wage growth (2.7%) and inflation remains narrow – just 0.3%. So consumers are likely to remain cautious while their living standards are still rising very slowly.”

He believes the Bank of England should grasp the nettle and raise interest rates: “While inflation has not picked up in the way some commentators expected, it still remains sensible for the MPC (Monetary Policy Committee) to edge interest rates up in August.

“The case for higher interest rates does not rest on short-term indicators. It is based upon the need to restore some balance and normality to monetary policy after the long period of extremely low borrowing costs we have seen since the global financial crisis.

“This needs to be done gradually – but as we have seen in the US, interest rates can be raised slowly without any damage to economic growth.”

He added: “Inflation should ease back a bit later this year, but the outlook for UK economic growth remains subdued. The latest PwC forecasts suggest that GDP will rise by 1.3% this year and 1.6% next.”

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