The FINANCIAL — Annual inflation in the U.K. rose slightly in July but remains close to zero, cementing expectations that the Bank of England is unlikely to raise interest rates until early next year, according to Nasdaq.
The Office for National Statistics said on August 18 that consumer prices rose by just 0.1% on the year in July, largely due to a smaller fall in clothing prices in this year’s summer sales than in 2014. Air fares rose on the year, offsetting a decline in food prices, the ONS said.
Annual inflation was flat on the year in June. Economists polled by The Wall Street Journal were expecting inflation to stay at zero this month.
The annual rate of inflation has been below the BOE’s 2% target for a year and a half, reflecting steep falls in prices for food and energy, as well as patchy global growth.
BOE officials led by Governor Mark Carney have said they expect consumer-price inflation to hover around zero for much of this year, before accelerating back to target during 2016 and 2017.
ONS data on August 18 showed domestic price pressures remain subdued: Prices charged by companies at the factory gate were 1.6% lower in July than a year earlier, and companies’ raw materials costs were down more than 12%. Western economies are bracing for a further disinflationary impulse this year from China, where the authorities have weakened the yuan, China’s currency, in an effort to boost exports and spur faster growth.
The U.K. is expected to be one of the fastest-growing advanced economies in 2015 after expanding 3% in 2014, and BOE officials have signaled that, despite the weakness in prices, they expect to begin gently raising interest rates in the first half of next year.
Some policy makers have signaled they may favor moving sooner. Ian McCafferty, one of the BOE’s nine rate-setters, voted for an immediate interest-rate increase this month.
The Federal Reserve is expected to begin raising interest rates in the U.S. this year, perhaps as soon as September.