United Kingdom pay growth slows to six-month low

19 July, 2018, 15:57 | Author: Regina Silva
  • Boxing Day sales

Pay growth is one of the pieces of data the Bank of England looks at most closely for signs that domestic inflation pressures are rising strongly enough for inflation to be at risk of breaching its 2 percent target over the medium term if the BoE does not raise rates in the immediate future.

Confounding expectations for the return of higher rates of inflation in June fuelled by the rising price of petrol, the Office for National Statistics said the consumer price index remained unchanged at 2.4% from the previous month.

Mike Hardie, its head of inflation, explained: "Consumers have been feeling the benefit of the summer clothing sales, and computer game prices have also fallen".

'Faster rising prices would have given the Bank of England cover for an interest rate hike next month.

The ONS's inflation report showed that consumers have been contending with higher prices at the pump, with a recent jump in crude oil prices sending petrol up 2.7p per litre on the month to 128p per litre, while diesel rose 2.9p to 132.1p. Britain's economy appears to be picking up after a slow first three months of the year, when unusually heavy snow hurt demand, and the central bank worries that growth is close to the modest pace at which it will start to push up inflation.

The ONS noted the largest decline in clothing costs - particularly for men - for June since 2012 of 2.3% as summer sales got underway.

Households were also squeezed by gas and electricity costs, which rose 2.5% and 2.2% respectively, month on month.

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That was nearly entirely down to the rising price of petrol, which has been triggered by steadily rising oil prices.

The cost of raw materials - many of them imported - was 10.2 per cent higher than in June 2017, the strongest rise in a year. While the WPI is no longer the primary focus in the Reserve Bank of India's inflation-targeting approach to monetary policy formulation - having ceded that role to the Consumer Price Index - the gauge remains economically significant nevertheless.

That increase was due to higher prices for clothing and recreational goods. This is the weakest growth rate since last November.

'August's expected rate hike is, therefore, even less of a dead cert than it was before today's surprise inflation print.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, eased to 1.9 percent in June from 2.1 percent in May.

Wholesale inflation rate, which is measured by the wholesale price index (WPI), is an indicator of price movements and largely mirrors trends in shop-end prices.

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