Last month saw many economists convinced that the Bank of England would raise interest rates in August.
Now it appears they are rethinking that view.
With inflation remaining static at 2.4% and house prices rising at their slowest pace for near five years and consumer sales, especially in clothing, remaining weak, the predicted rate rise may now be in doubt.
The CPI, consumer prices index which is the main measure of inflation, showed an increase in prices of 2.4% in June. This remains unchanged from May but is below the 2.6% forecast, according to the Office for National Statistics, remaining at a one year low.
The recent oil price rise which saw petrol prices rise to their highest levels since 2014 and an increase in gas and electricity prices were expected to boost the rate of inflation. However, the cost of clothing and computer games fell. The monthly drop in clothing costs in June was the biggest recorded since 2012 amid summer sales and gloom on the high street.
Economists said retailers were being pushed to lower their prices as levels of spending on the high street fell. Some stores such as Marks and Spencer and Mothercare have had to close hundreds of stores.
Falling wage growth and the slide in sterling against the dollar is also seen as a factor in the Bank of England’s decision on whether to raise interest rates in August. On foreign exchanges the pound was at a 10-month low against the dollar and recent official figures showed the rate of wage growth at its lowest in six months, hovering just above the rate of inflation at 2.5% in the three months to May.
The Bank of England has an inflation rate target, set by the government, of 2%. Whilst inflation remains above target, economists have said the CPI, showing the cost of living, has come back from its 3.1% reached last November. Some observers feel there could still be rising inflation ahead as manufacturers raise their prices, with Brexit uncertainty remaining in the forefront.
Mel Stride MP, the financial secretary to the Treasury, was reported as saying, the government recognised that households were coming under pressure and had frozen the rate of fuel duty and raised the minimum wage.
With mixed readings on the economy, the Bank of England’s decision on interest rates due on the 2nd August will also come amid heightened political tension over Brexit.
The head of economics at the British Chambers of Commerce, said the Bank should focus on providing “stability to avoid further undermining business and consumer confidence” against this backdrop.
The TUC general secretary, Frances O’Grady, said: “With wage growth stalling, now is not the time to hike interest rates. Household budgets are still under huge pressure.”