Mark Carney, the new Bank of England governor, has narrowly avoided having to write a formal letter to the Chancellor in his first month in the post after inflation rose by less than expected last month.
While the consumer prices index (CPI) hit a 14-month high of 2.9 per cent in June, up from May’s reading of 2.7 per cent, the figure was below analysts’ forecasts.
Inflation was prevented from climbing higher by falls in the prices of fruit, vegetables, bread, air fares and package holidays, which all form part of the basket of goods used to calculate the rate of CPI.
A figure above 3 per cent would have required Carney to write an open letter to George Osborne explaining why inflation remains well above the BoE’s 2 per cent target.
Rob Harbron, an economist at the Centre for Economics & Business Research, said: “Although inflation heading towards the limits of the Bank’s target range is likely to cause a headache for new Bank of England governor and the rest of the monetary policy committee (MPC), a statement was issued after their last meeting that suggested that an increase in interest rates is unwarranted for the meantime.”
Samuel Tombs, UK economist at Capital Economics, said the inflation data “will be greeted with some relief on Threadneedle Street”.
He added: “It seems likely that June’s inflation figure will represent this year’s peak.
“Indeed, with leading indicators pointing to a fall in core inflation in the second half of this year, we think that CPI inflation is likely to fall back to the 2 per cent target by the end of the year.”
Some policymakers have argued that persistently sticky inflation is a reason why the central bank should not resume its quantitative easing programme.
At its July policy meeting, the MPC voted against adding to the £375 billion scheme.
Minutes of the meeting, published today, will show if Carney followed his predecessor, Sir Mervyn King, in voting for more QE. Most analysts believe he will have sat on his hands.