Sterling falls as UK inflation stays flat at 2.6 per cent

Emma Haslett
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Food price inflation was at its highest in "several years", the ONS said (Source: Getty)

The UK's rate of inflation stuck at 2.6 per cent in July as the cost of petrol and diesel kept prices lower than expected, official figures published today showed.

The figure took analysts by surprise: they had been expecting the Office for National Statistics' (ONS) consumer prices index (CPI) to rise to 2.7 per cent. It caused the pound to fall against the dollar, dropping 0.3 per cent to $1.2927.

CPIH, a new measure including occupier housing costs which the ONS is aiming to designate as the official measure of inflation, also stayed flat at 2.6 per cent.

The figure is still well above the Bank of England's two per cent target, but analysts suggested UK inflation growth is beginning to lose steam.

"The UK home grown prices are still somewhat muted and it is something which the [Bank of England's monetary policy committee] is comfortable about," said Naeem Aslam, chief market analyst at Think Markets.

‚Äč"The inflation data overshooting the bank’s target continues to be blamed on the sterling weakness. Going forward, the growth picture still looks subdued and this does not appear to be changing in 2018 as well."

Read more: Inflation to hit lower peak says Niesr, easing Bank rate hike pressure

Devalued sterling

A fall in the value of sterling has driven consumer prices lower: the pound has fallen more than 11 per cent against the dollar since last June's Brexit vote.

However, the weaker pound has led to higher prices for consumers, with clothing, household goods, gas and electricity and food all pushing prices up. Today's figures showed food and non-alcoholic beverages rising 0.2 per cent, their highest increase in several years. However, housing and household services rose by the most, up 0.6 per cent, while transport increased 0.4 per cent.

Meanwhile, the retail price index, which takes into account extra measures including the cost of council tax, rose to 3.6 per cent: July's RPI figure sets the annual increase for government-regulated rail fares.

Read more: Bank of England's Ben Broadbent: The UK is at the "maximum rate of pain"

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