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INFLATION SHOCK

Blow to UK as higher spending plans hit

London, August 15, 2012

British inflation unexpectedly rose in July, damaging hopes that easing price pressures would allow Britons to help the recession-hit economy with higher spending, but leaving expectations for more central bank stimulus intact for now.

Consumer price inflation inched up to 2.6 per cent from 2.4 per cent in June as airfares soared and clothing retailers reined in seasonal discounts, the Office for National Statistics said yesterday, confounding economists' forecasts for a fall and posting the first rise since March.

Last week, the Bank of England slashed its inflation forecast, seeing inflation nearly back at its 2 per cent target by the end of this year.

Analysts said the July figures were bucking a broader trend. 'We really need to take the June and July figures together and this implies that the downward trend in prices remains in place,' an economist at ING said.

'The rise in oil prices and food commodities presents some risks for headline inflation in coming months, but with the weak economy implying only limited corporate pricing power we still expect inflation to fall below 2 per cent by the end of the year,' he added.

The ONS said that airfares jumped 21.7 per cent on the month, the largest rise from June to July since 2004.

Many Britons have experienced the worst squeeze in living standards in over 30 years and scaled back spending as higher taxes and rising prices have eaten up meagre wage increases.

Inflation has fallen sharply from the three-year peak of 5.2 per cent hit in September 2011, and June's fall had been much sharper than expected, driven in part by the early summer sales.-Reuters




Tags: inflation | UK | Spending |

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