Key Bank of England figure hints at interest rate rise

The Consumer Price Index (CPI) measure of inflation was slightly higher than expected in July, edging up from zero in June due to the weaker impact of summer clothing sales compared to previous year. She added that interest rates would have to raised well before inflation hits the Bank of England’s inflation target of 2 percent.

Samuel Tombs, of Capital Economics, said: “CPI inflation probably held steady at zero in July, but the recent fall in oil prices suggests that the UK is likely to experience another bout of negative inflation before the end of the year”.

The largest upward contribution “by far” was made by clothing and footwear, where prices dropped by 3.4 per cent between June and July this year, compared to a 5.7 per cent fall in the same period a year ago.

The Bank slashed interest rates to 0.5% during the financial crisis in 2009 and has kept them there since.

Maike Currie, associate investment director at Fidelity Personal Investing, said the marginal rise in inflation “puts the rate rise debate back on the table”.

The figure released Tuesday means there’s little pressure for the Bank of England to raise interest rates.

Sustained low inflation is delaying the timing of any interest rate hike by the Bank of England, meaning households are enjoying low borrowing costs while the economy grows – along with wages. But the yuan stabilised after China eased fears the devaluation was a deliberate attempt to give it a competitive advantage, and investors are again growing confident that interest rate increases by some major central banks are on the horizon.

David Miles, who will leave the MPC this month having never vote for a rate rise, admitted there was a “reasonable case” for an August hike but he was dissuaded by contradictory price pressures in the economy.

The remarks will be seen as the latest sign to borrowers that they may be hit with a rise in rates over coming months, while savers may start to see a gradual improvement after years of low returns.

A BoE official said on Sunday that waiting too long to raise interest rates could undermine Britain’s economic recovery.

Sterling gained 0.77 cent to $1.5665 against the dollar and racked up similar ground against the euro as the Consumer Prices Index – forecast to stay becalmed at 0% – ticked up to 0.1%.