U.K. Consumer Prices Rise In July

(RTTNews) - U.K. consumer prices rose unexpectedly in July on smaller discounts on clothing prices during summer sales, while core inflation reached a five-month high, the Office for National Statistics revealed Tuesday.

Consumer prices advanced 0.1 percent in July from last year, while they were expected to remain flat as seen in June.

The official inflation target of the Bank of England is 2 percent and the bank has estimated inflation to return to the target level within two years.

BoE Governor Mark Carney said early this month that the likely timing of the first bank rate increase is drawing closer.

A delay in increasing interest rate could undermine the U.K. recovery, BoE policymaker Kristin Forbes wrote in an article in the Daily Telegraph this week.

The inflation outlook is still too weak to merit raising interest rates this year, Samuel Tombs, a senior UK economist at Capital Economics, said.

With inflation muted and another wave of austerity set to hit the economy, the economist expects the central bank to hold off from raising interest rates until the second quarter of 2016.

The strength of the pound and lower oil prices keep inflation weaker in the U.K. In April, inflation turned negative for the first time since 1960.

Core inflation accelerated a 5-month high of 1.2 percent in July from 0.8 percent in June. Economists had forecast it to rise marginally to 0.9 percent.

Clothing prices usually decline during the summer sales. But this July, clothing and footwear prices declined at a slower pace of 3.4 percent year-on-year due to smaller discounts. Meanwhile, increases in costs of transport services and recreation exerted upward pressure.

Month-on-month, consumer prices dropped 0.2 percent after showing no change in June. This was the first fall in six months. Nonetheless, it was slightly slower than the expected 0.3 percent decrease. Separate data from the ONS today confirmed the continuation of negative factory-gate inflation in July. Output prices dropped 1.6 percent each in July, June and May. It was expected to fall by 1.5 percent.

On a monthly basis, output prices slid 0.1 percent, the same rate of fall as seen in June and was in line with economists' expectations.

Input prices plunged 12.4 percent annually in July. Prices of crude oil, home produced food and imported metals contributed to the annual decline. Economists had expected prices to fall 12.7 percent after easing 13.1 percent in June.

On a monthly basis, prices declined 0.9 percent compared to a 1.8 percent fall in June.

The retail price index, which is used to calculate regulated rail fare, rose 1 percent in July. This means that no regulated rail fares will rise by more than that figure in 2016, the Department of Transport said.

Regulated rail fares would increase by 1 percent in January next year. "Hardworking families will see an end to inflation-busting hikes in regulated rail fares," Rail Minister Claire Perry, said.

Elsewhere, data from the ONS showed that house price inflation rose marginally to 5.7 percent in June from 5.6 percent a month ago. In London, house price growth advanced to 5.3 percent from 4.9 percent in May.