Inflation rate tipped to stay at 0.5%


Inflation is expected to stay at 0.5% when official figures for July are published today, with economists looking for any impact on prices from the Brexit vote.

The Consumer Price Index (CPI) measure of inflation rose to a higher-than-expected 0.5% in June after holding at 0.3% in April and May.

Some economists believe July's data may be too early to show the true effect of the pound's slump after the EU referendum result.

However, Investec economist Chris Hare said the sharp drop in sterling may have caused petrol prices to creep up in July.

''The June surge in air fares will not be repeated and will unwind in the annual calculation. But, pushing up in the other direction, the post-EU referendum fall in sterling should push up on petrol prices,'' he said.

''We also expect to see slightly more pronounced clothing discounting than that seen in July last year.'' 

June's hike in the cost of living came in part from soaring flight prices, which climbed by a record 10.9% between May and June, pushed higher by more expensive air fares to Europe.

A rise in the price of filling up at the pump also had an upward impact on CPI, picking up more than it did a year ago, with the cost of petrol and diesel climbing by 2.3p and 2.6p per litre respectively between May and June.

The price of petrol was 111p per litre in June, while diesel reached 112.1p.

The CPI update comes amid a bleak outlook for the UK economy, with many economists slashing their growth forecasts amid a string of dire economic reports.

The Bank of England cut interest rates for the first time since 2009 at the beginning of the month and delivered an emergency package worth up to £170 billion to ward off recession following the Brexit vote.

Policymakers on the Monetary Policy Committee (MPC) voted unanimously to cut rates to a historic low of 0.25% from 0.5% - the first cut since March 2009 when the Bank reduced rates at the height of the financial crisis.

Britain will avoid recession, according to the Bank, but it warned over a ''material slowdown'', higher unemployment and falling house prices over the next year.