Sunday 18 August 2019

Inflation expected to be stagnant amid Brexit uncertainty

Food prices are expected to have risen in June, but analysts predict they will have been offset by a slowdown in energy price inflation.

Anti-Brexit campaigners wave Union and European Union flags outside the Houses of Parliament, London.
Anti-Brexit campaigners wave Union and European Union flags outside the Houses of Parliament, London.

By Henry Saker-Clark, PA City Reporter

Inflation is expected to have been stagnant in June, as the economy continues to be subdued amid Brexit uncertainty.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that the Consumer Prices Index (CPI) rate of inflation was steady at 2.0% last month.

In May inflation fell from 2.1% in April to dead on the Bank of England’s inflation target.

A major slowdown in energy price inflation is expected to have been one of the most significant factors in June’s inflation rate.

Analysts have predicted that energy inflation for the month was 4.8%, representing a significant fall from a 7% rise in May, after average petrol and diesel fuel prices slumped.

Electricity and natural gas prices held steady from May, failing to match major price jumps that took place in June 2018.

Food inflation is also predicted to have been a key factor for the subdued month, after a number of food retailers said in May that they intended to push up prices over the next three months.

Clothing prices are also expected to have slipped over month, in line with normal seasonal changes as retailers put prices down to help shift stock before they launch autumn ranges.

Analysts have also predicted a decline in video games prices amid a quieter summer sales period.

The latest figures will prompt fresh speculation over whether the Bank of England’s Monetary Policy Committee (MPC) will change interest rates this year

Ed Monk, associate director for personal investing at Fidelity International, said: “Last month inflation started to edge higher again giving some cause for concern that wages could soon outstrip inflation.

“If this is the case on Wednesday, then some of the shine may come off Tuesday’s wage numbers.

“Reports say that if there is a no-deal Brexit the Bank of England could cut interest rates to near zero – meaning your cash savings could be hit with the double whammy of inflation and zero interest.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added: “Looking ahead, CPI inflation looks set to average just 1.7% in the second half of this year.

“The drop, however, will be driven by a further decline in energy inflation, due to the stabilisation of oil prices and the likely reduction in the cap on electricity and natural gas prices when the regulator resets it in October.”

PA Media

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