U.K. annual CPI remains unchanged in July, upward pressure on inflation likely to resume in months ahead

The U.K.’s annual rate of consumer price inflation remained the same in July from June’s reading. The CPI inflation came in at 2.6 percent year-on-year, coming in below the consensus expectations of 2.7 percent. The core rate, which excludes food, energy, alcohol and tobacco, also remained the same at 2.4 percent in July. This also undershot the consensus expectations of 2.5 percent. But the RPI measure of inflation accelerated on the month, rising to 3.6 percent year-on-year in July, which signifies that the RPI-CPI wedge broadened out to 1 percentage point.

Delving into the detail, most categories usually moved as was anticipated, with seasonal effects pushing airfares up by 17.9 percent, while declines in clothing & footwear and furniture prices gave an offset, noted Lloyds Bank in a research report. The latter two categories are quite sensitive to changes in the currency and so give additional tentative signs that most of the impact of last year’s sterling depreciation might be behind us, stated Lloyds Bank.

The print released on Tuesday leaves inflation at the beginning of the third quarter matching the Bank of England’s forecast made in its August Inflation Report. However, consistent with the BoE, the upward push from some residual sterling weakness is still expected to deliver some additional upward pressure on inflation. It has been anticipated for a while that the headline inflation would peak in the fourth quarter above 3 percent. Even if the report released shows some minor downside risks to this view, there is still possibility that upward pressure on inflation might resume in months ahead, added Lloyds Bank.

At 20:00 GMT the FxWirePro's Hourly Strength Index of British Pound was highly bearish at -112.416, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 67.4585. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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