UK inflation stalls at 0.6%


Consumer price inflation failed to budge in August remaining at 0.6 per cent, the same as the previous month’s figure.

Today’s figure comes despite producer input prices rising 7.6 per cent in the same month, up from 4.3 per cent in July.

Upward pressure in today’s inflation figure came from air fares and petrol prices, while bread, cereals and meat also provided some upward impact.

However, the impact was limited by prices for clothing, wine, restaurants and hotels.

IHS Markit chief economist for the UK and Europe Howard Archer says: “While the pound has firmed its post-Brexit vote lows, it remains substantially lower overall – and we suspect it will sooner or later come under renewed appreciable downward pressure.”

Services inflation edged up to 2.8 per cent from 2.7 per cent in July. However, goods prices saw a year-on-year fall at 1.4 per cent, down from 1.6 per cent in June and 1.8 per cent in May.

IHS Markit predicts inflation will hit 1.2 per cent by the end of the year before hitting 2 per cent in 2017 and peaking at 3 per cent between 2017/2018.

While consumers have buoyed the post-Brexit economy, Archer argues consumer purchasing power will be “significantly diluted over the coming months” as inflation trends higher.

He adds: “Companies may well look to clamp down on workers’ pay as they strive to save costs in a more difficult environment and as imported input prices are lifted by the weakened pound.”

Towry head of investment Andrew Wilson says: “It looks as though inflation is going to be a story for 2017, rather than 2016.

For the moment inflation is providing no pressure on the Monetary Policy Committee to raise interest rates, although any inflation at all is still bad news for savers, given the miserly rates available on cash and bonds.”