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Inflation figures cast doubt over interest rate rise

Inflation stayed put at 2.4 per cent in June, bucking against an expectation it would rise to 2.6 per cent.

Data from the Office for National Statistics released today show inflation will remain at its lowest level for 12 months.

Smith & Williamson Global Inflation-Linked Bond Fund manager Thomas Wells says the Bank of England will now find it hard to increase interest rates when its committee next meets on 2 August.

In June, the Bank of England’s Monetary Policy Committee voted to keep interest rates on hold at 0.5 per cent but with an increased number of members calling for a rate rise.

Wells says: “This was a below consensus inflation print and fits with our view that CPI would start to be better behaved as we move into the second half of the year. However, RPI remains elevated at 3.4 per cent.”

He adds: “The large Brexit-driven surge in inflation due to the slump in the value of the pound is now finally beginning to wash out of the system. Core inflation was significantly weaker than expected at 1.9 per cent year-on-year, which will make it more difficult for the Bank of England to raise rates, particularly given a backdrop of Brexit and trade uncertainty.

Wage inflation figures were also released this week showing average weekly wages grew by 2.5 per cent on the year over the past three months.

AJ Bell personal finance analyst Laura Suter says: “Both these figures together will make for tougher reading for the Bank of England’s rate setting committee when they meet next month, with some predicting the figures mean that a mooted interest rate rise will be put on the back burner.”

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