Tags: EU | Britain | Economy

UK Consumer Price Inflation Falls to 3.1 Percent

Tuesday, 17 Aug 2010 07:54 AM

Inflation eased in Britain last month but remained well above the government's 2 percent target — forcing the Bank of England to publish its third open letter this year to explain the extended blowout in prices.

The Office for National Statistics reported on Tuesday that the headline consumer price index rose 3.1 percent in the year to July, down from 3.2 percent in June.

That was the lowest rate since February, but the eighth consecutive month that the inflation rate has exceeded the target.

Bank of England Governor Mervyn King is likely to blame one-time factors, such as a rise in sales tax in January, and reiterate the central bank's forecast that the inflation rate will fall below target within two years in his letter to Treasury chief George Osborne.

"The governor will be able to play down these figures," said Andrew Goodwin, senior economic advisor to the Ernst & Young Item Club economic consultancy. "Were it not for January's VAT rise then inflation would most likely be below target."

But it is likely not the last letter King is required to write this year — he warned last week that inflation would be above target until the end of 2011.

The impact of the Russian wheat crisis on food prices and a further rise in sales tax next January are leading inflationary pressures.

"But these are all temporary factors and underlying price pressures remain weak — once these temporary factors have fallen out of the calculation we are likely to see inflation settle well below the 2 percent target," said Goodwin.

The July inflation figures are closely watched as the retail index is used to set rail fare increases for the following year. That measure fell to 4.8 percent in the year to July from 5 percent in June.

Falling prices for petrol, clothing, footwear and furniture helped ease consumer price inflation, despite a 0.7 percent jump in food prices between June and July — the biggest monthly rise for two years.

The Bank of England, responsible for setting benchmark interest rates and monetary policy, is required to write an open letter when inflation is more than 1 percent above or below the 2 percent target. It must write another letter if the rate remains out of that range three months later. King has published letters in February and May.

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Economy
Inflation eased in Britain last month but remained well above the government's 2 percent target forcing the Bank of England to publish its third open letter this year to explain the extended blowout in prices.The Office for National Statistics reported on Tuesday that the...
EU,Britain,Economy
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2010-54-17
Tuesday, 17 Aug 2010 07:54 AM
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