UK CPI inflation may remain below MPC target

The small rise in UK CPI inflation (released on Tuesday) from 0% to 0.1% in July merely reflected the slightly earlier conclusion of summer discounting of clothing this year compared to last and so has little bearing on the likely timing of the first interest rate rise. 

"Fundamentally, the inflation outlook is still too weak to merit raising interest rates this year. The scale of the recent fall back in oil prices suggests that CPI inflation is still likely to turn negative again over the next few months. And while inflation should pick up at the very start of 2016 as the anniversary of the previous plunge in oil prices is reached, it still looks likely to remain well below the MPC's 2% target next year", said Capital Economics in a research note to its clients. 

Pipeline price pressures remain extremely weak - July's producer prices figures showed that output prices were 1.6% lower than a year ago. In addition, long time lags between changes in import prices and shop prices mean that sterling's recent appreciation should keep a lid on CPI inflation until the end of 2016.