Surprise fall in inflation rate

The rate of inflation has fallen for the first time in more than a year, new figures from the ONS have shown.

The Consumer Prices Index (CPI) rate was 2.6% in June, down from 2.9% in May – the first fall in the rate since October 2016.

Economists had been forecasting the rate to stay at 2.9% or drop by one-tenth of a percentage point.

Jonathan Athow, deputy national statistician at the ONS, said: “Today’s fall in inflation is mainly due to drops in petrol and diesel prices. Howevever, the rate remains higher than in the recent past.”

This was partially offset by rising prices for furniture and furnishings.

An interest rate rise next month is now much more unlikely according to Ben Brettell, senior economist at Hargreaves Lansdown.

He said: “UK inflation fell unexpectedly in June to 2.6%, easing the pressure on squeezed household budgets and substantially reducing the likelihood of an August interest rate rise.

“The news sent the pound sharply lower as currency traders adjusted their outlook for interest rates. The Bank of England’s rhetoric has taken an increasingly hawkish tone in recent weeks, with Mark Carney himself saying at the end of last month that ‘some removal of monetary stimulus is likely to become necessary’. Chief economist Andy Haldane also indicated he might support a rate rise this year.

“However if today’s pullback in inflation marks the start of a sustained decline, the pressure on the Bank to raise rates will ease.”

Last month the National Statistician changed the pre-release access to information which means this is the first consumer price inflation release where ministers and other officials did not receive the data before publication.