17th Sep 2013 11:56
LONDON (Alliance News) - Driven by modest increases in transportation and clothing costs, UK inflation slowed for the second consecutive month, as expected, in August. In addition, factory-gate inflation fell markedly, indicating easing inflationary pressures in the pipeline.
Inflation dropped to 2.7 percent from 2.8 percent in July, data published by the Office for National Statistics revealed Tuesday.
The headline figure moved a bit closer to the Bank of England's 2 percent target. But, wages increased only 1 percent during the same period, suggesting that spending capacity remain constrained in the economy.
Consumer prices rose 0.4 percent from July, when they remained flat. Economists had forecast prices to advance by 0.5 percent in August.
Capital Economics' UK economist Samuel Tombs forecasts inflation to fall back to the 2 percent target within the next few months.
This expected development would help to ease the squeeze on households' real earnings and cool fears in the markets that one of the inflation knockouts to the central bank's forward guidance is likely to be breached, he said.
According to the interest rate guidance, the Bank of England will not hike the interest rate from the 0.50 percent, at least until the jobless rate falls to a threshold of 7 percent.
IHS Global Insight's Chief UK Economist Howard Archer said August's dip in inflation supports hopes that inflation is near to peaking, and may even have done so. This may slightly reduce market expectations that the central bank could raise interest rates as soon as early-2015 or even late-2014.
Data showed that core inflation that excludes energy, food, alcoholic beverages and tobacco, held steady at 2 percent in August, confounding expectations for a moderate rise to 2.1 percent.
The slower increases in transportation and clothing prices were partially offset by an upward contribution from furniture, household equipment and maintenance. Food price inflation also gained pace in August.
Meanwhile, retail price inflation rose to 3.3 percent from 3.1 percent in July.
Another report showed that output price inflation slowed more-than-expected to 1.6 percent from 2.1 percent a month ago. The rate was seen at 1.8 percent. Month-on-month, output prices edged up 0.1 percent compared with 0.2 percent increase in July.
Similarly, input price inflation declined to 2.8 percent from 5.1 percent last month and came in below the 3 percent consensus. On a monthly basis, input prices fell for the first time in three months, down 0.2 percent.
In a separate communique, the ONS said house prices in the UK increased at a faster rate of 3.3 percent in July after climbing 3.1 percent in June. House price growth remained stable across most of the UK, although prices in London increased at a faster rate than the national average.
Copyright RTT News/dpa-AFX