UK inflation overshoots Bank of England target
UK inflation rose faster than expected in July, according to figures released by the Office for National Statistics on Wednesday.
Consumer price inflation came in at 2.1% in the year to July, up from 2% in June, coming in above expectations for a decline to 1.9% and overshooting the Bank of England's 2% target.
In its August Inflation Report, the BoE had projected a drop to 1.8%.
Core inflation increased to 1.9% from 1.8%, coming above the no-change consensus.
Chris Jenkins, assistant head of inflation at ONS, said: "The inflation rate increased slightly, with computer games, consoles and hotel prices rising more than they did last year. Conversely, air, international rail and sea fares did not rise by as much as 12 months ago."
Meanwhile, the retail price index fell to 2.8% last month from 2.9% in June, meeting analysts' expectations.
On Tuesday, data from the ONS showed that average weekly earnings grew by 3.7% in the year to June, marking the biggest increase in more than a decade.
David Cheetham, chief market analyst at XTB, said: "With the Bank of England recently stating that it was to become more data dependent this latest release could well be seen as supporting a hike with the headline reading now back above the 2% threshold for only the second time this year.
"Having said that, despite Governor Carney’s insistence that the Bank’s next move could be either higher or lower the consensus opinion remains very much that they won’t move before the October 31st Brexit deadline, and the most likely move after that would be to cut rates.
"As such this data will unlikely provide any lasting upside in the pound and the currency continues to languish around the recent lows just above the $1.20 handle."
Ruth Gregory, senior UK economist at Capital Economics, said the figures may dampen speculation that the Bank of England may soon follow in the Fed’s footsteps and cut interest rates.
"Indeed, with the ongoing strength in pay growth and the fall in the pound likely to leave inflation above the 2% target in 2020, we still think that it is only in a no deal Brexit that the MPC will cut rates."