U.K. headline consumer price inflation remains steady in June, BoE likely to hike rates next month

U.K. annual pace of inflation remained steady in June, against consensus expectations of an acceleration. On a year-on-year basis, inflation came in at 2.4 percent, as compared with consensus expectations of 2.6 percent. While the upward effects were seen in energy-related categories of the U.K. inflation basket – with auto-fuel prices rising 2.2 percent last month and three big energy firms increasing utility prices – these were more than cancelled out by downward effects in several ‘core’ goods categories, noted Lloyds Bank in a research report.

Especially, prices of recreational and cultural items dropped last month, while clothing and footwear prices fell 2.1 percent, against the expectation of a rise, based on evidence from the BRC shop price index. The latter, along with a smaller than expected rise in furniture & furnishing prices accounts for most of the downside surprise in today’s numbers compared to the forecast. Therefore, the core rate of inflation slowed last month, falling below 1 percent for the first time since last March to 1.9 percent.

The annual pace of inflation did not accelerate in June owing mainly to the ongoing downward influence. However, in the months ahead, the continued feed through from higher utility prices is expected to keep inflation around its current level.

Furthermore, it is conceivable that some of the misses compared to the BRC data are because of the timing and that there might still be upticks in some ‘core’ goods categories in July, underpinning the view that inflation is expected to stay sticky for some time still.

“We still expect the Bank of England (BoE) to hike interest rates next month, but today’s report does little to suggest that there should be any change to the BoE’s rhetoric, added Lloyds Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -114.735, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 55.4229. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex