The UK inflation data
Commentary on the UK inflation data, expert from Markit, Chris Williamson, said:
“UK inflation rose in June, buoyed by rising airfares and higher oil prices. Inflation had been stuck at 0.3% for most of the year to date prior to June, but the latest increase was one of the largest seen since late-2014, and likely to be the start of a rising trend in prices as costs march higher in response to the recent slump in sterling.
“The June inflation rate was based mainly on data collected prior to the 23 June referendum, so ignores the part of the month in which the pound sank lower after the vote to leave the EU. Sterling was 2% lower against a basket of currencies on average in June, though by the end of the month had fallen some 8.1%.
“The Office for National Statistics attributed June’s increase in inflation to the rising cost of airfares to Europe (flight costs increased a record 10.9%), most likely a result of the Euro 16 football championship, as well as rising fuel prices, in turn linked to the recent upturn in oil prices.
“Inflation is therefore likely to rise further in coming months as the impact of sterling’s depreciation feeds through, breaching the Bank of England 2% target next year, possibly by some margin. However, policymakers are expected to ‘look through’ any rise in inflation caused by the Brexit-related slump in the pound, focusing instead on the job of shoring up economic growth.
“Interest rate cuts and non-standard measures such as additional asset purchases are therefore widely expected to be seen when the Monetary Policy Committee next meets in August. The immediate need for policy action of course depends on the extent to which business activity has been hurt by the uncertainty caused by the referendum, more of which will be known on Friday with the release of flash PMI data for July.”
