Inflation falls and lessens rate hike pressure

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The rate of inflation fell unexpectedly to 2.6% in June from 2.9% the previous month, led by lower oil prices.

The fall is significant as it takes the pressure off the Bank of England to hike interest rates in response to rising prices.

Following the news Sterling fell against the US Dollar after a recent strengthening which was at least partly in response to the increased expectations of a rate rise.

Economists had largely expected inflation to remain static in June as prices continue to feel the effects of weaker sterling since the Brexit referendum which has pushed up import costs.

Calum Bennie, Scottish Friendly’s savings specialist, said: “Despite a drop in the headline rate of inflation, many families will still be facing the same relentless pressure to make ends meet.

“The cost of food, household goods and furniture all became more expensive in June and with wage growth still flat those at the bottom will continue to turn to credit or rapidly deplete savings just to keep food on the table.

“As long as this squeeze continues the Bank of England faces a difficult balancing act. While on the one hand raising interest rates may help to combat inflation, on the other it will cause real pain for homeowners who could see the cost of their mortgages rise.”

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Written by: Houseladder