UK Inflation Rate Slows in July


UK inflation eased to 3.1% in July from 3.2% in June, the third month in a row that prices have risen more slowly.

The governor of the Bank of England has written to the chancellor of the exchequer explaining why inflation is still above target. In his letter, Mervyn King said that although the Bank's Monetary Policy Committee (MPC) had been "surprised" by the recent strength of inflation, this was largely due to "temporary" factors. These included the return of VAT in January to 17.5% following the reduction to 15% during the recession, past rises in oil prices and higher import prices as a result of the depreciation in the pound since the middle of 2007.

The main factor behind the drop in the inflation rate was a fall in transport costs, and in particular the prices of second-hand cars and fuel. Other factors included falls in the price of clothing and footwear.

The wide measure of the cost of living - which includes housing costs - is the Retail Price Index. It rose by 4.8% in the year to July - 5% in the year to June 2010.

Core inflation - which ignores volatile energy and food prices and is closely watched by economists - fell to 2.6% to 3.1%.


TradingEconomics.com, BBC
8/17/2010 11:10:05 AM