Pound slumps on inflation figures

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The Pound continued to languish around the 1.30 level against the US Dollar yesterday, with investors dialling back bets on a Bank of England interest rate hike following Wednesday's soft inflation print.

Analysts' expectations had been for inflation's Consumer Prices Index 12-month rate to have risen to 2.6 per cent last month.

"The economic data from the United Kingdom economy continues to be confusing and may lead markets to doubt the expected interest rate rise at the start of next month".

'However, gas and electricity and petrol prices all rose, with consumers seeing the highest price at the pump for almost four years, with inflation remaining steady overall'.

The ONS reported the biggest month-on-month drop in clothing prices for any June since 2012 as shops slashed prices for the summer sales. "This is likely to mean a slow pace of rate hikes". Economists had expected growth of 0.4%.

The UK's rate of inflation has been steadily dropping since the beginning of 2018.

"Once the Bank has hiked rates in August, we think heightened Brexit uncertainty could make it very complicated for policymakers to raise rates again before May 2019".

CPIH June 2016 to June 2018
Source Office for National Statistics

Some of the largest energy suppliers - including British Gas, Scottish Power, and EDF Energy - have announced price rises set to kick in over the summer.

This was the highest input price inflation since May 2017, driven by higher crude oil costs, despite falling on the month.

There have been some signs of recovery which could encourage the BoE to raise interest rates in August, to counter the high levels of Inflation that have been seen since the Brexit vote.

But some relief emerged for consumers on the high street, where clothing discounts, most strongly felt in men's apparel, left more cash in shoppers' wallets. Annual inflation was expected to accelerate to 2.6 percent, according to a Bloomberg survey of economists.

Upward pressure on prices came from motor fuels, domestic gas and electricity but this was offset but falling prices for clothing and games, toys and hobbies. The ONS report shows that the British economy has added 137,000 jobs, and that there are still 824,000 unfilled vacancies, but rates of pay are not increasing as rapidly as they once did. Month-on-month, output prices gained 0.1 percent from May, when it rose by 0.5 percent.

The Retail Prices Index, a separate measure of inflation, was 3.4 per cent last month, up from 3.3 per cent in May.

The core rate of consumer price growth, which strips out volatile components of energy and food, was flat month-on-month in June, while growing by a worse-than-expected 0.9% on a year previous.