Inflation rise ‘could delay QE’

HIGHER than expected inflation figures could delay a fresh round of quantitative easing by the Bank of England, according to analysts.

The latest figures showed an unexpected rise in the headline CPI rate of inflation from 2.4% in June to 2.6% in July.

Coverage of the inflation figures is brought to readers of TheBusinessDesk.com in association with stockbrokers Redmayne-Bentley.

Phillip Wong, from Redmayne-Bentley, said: “Economists were surprised to see UK inflation unexpectedly rise for the month of July as higher airfares and clothing pushed CPI to 2.6% and marked only the second time since the CPI measurement was introduced that the index has risen between June and July.

“Last week, Bank of England governor Sir Mervyn King cut growth forecasts to 0%. Even for the UK economy to remain flat, it is increasingly likely that further monetary injections will be needed from the central bank. However, today’s figures may delay this course of action further into the year.”

The jump in CPI inflation was unexpected with most forecasters expecting a fall to 2.3% however business groups insisted a return to the long term downward trend was likely in the months ahead.

Graeme Leach, chief economist at the Institute of Directors, said: “The latest rise in CPI inflation to 2.6% in July should only be a temporary hiccup in an otherwise downward path over the coming months. The 0.1% monthly increase was disappointing, but small, and needs to be seen in context.

“Firstly, there was always likely to be a small bounce back in clothing inflation in July, after wet weather forced heavy discounting by retailers in June. Secondly, the CPI index rose by 0.6% in August last year, and so in the absence of such an increase this year, headline inflation should fall back sharply next month, although there are concerns about food and petrol prices accelerating.

“But the big drivers of inflation remain very weak, with the money supply and wage growth providing strong downward pressure.”