The rate of consumer prices index (CPI) inflation remained at 2.6 per cent last month, the Office for National Statistics (ONS) said today.
Although the reading remains well above the Bank of England’s target of 2 per cent, it was slightly lower than expected, as most economists had pencilled in a modest rise to 2.7 per cent.
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The ONS said the price of motor fuel continued to fall and provided the largest downward contribution to the rate of inflation between June and July. Petrol dropped by 1.4p month-on-month to 113.9p a litre, while diesel slipped by 1.7p to 115.6p.
“This was offset by smaller upward contributions from a range of goods and services, including clothing, household goods, gas and electricity, and food and non-alcoholic beverages,” the ONS added.
But rail passengers will see fares rise by 3.6 per cent when price changes come into force in the new year, as the ONS said the retail prices index (RPI) measure of inflation, which is used to calculate train ticket prices, rose by 3.6 per cent in July, up from 3.5 per cent the previous month.
James Tucker, ONS head of consumer price inflation, said: “Falling fuel prices offset by the costs of food, clothing and household goods left the headline rate of inflation unchanged in July.”
Sterling, already under pressure amid political confusion over Brexit, dipped on the news. The pound was trading 0.3 per cent lower against the dollar at $1.29 and 0.1 per cent lower verses the euro at €1.09.
Kate Smith, head of pensions at Edinburgh-based insurer Aegon, said: “Prices may not have jumped in the way many were predicting this month, but the upward trend of recent months has put pressure on UK households, hitting pensioners and those on a fixed income especially hard.
“The impact of inflation will be doubly felt by retirees this month, because they are more sensitive to price changes in energy and certain goods and services. While the price of motor fuel might be falling, household energy costs and the price of clothing and household goods are on the rise.”
Households have seen their spending power come under sustained pressure from lacklustre wage growth and higher inflation, triggering an increase in credit and a decline in savings.
Clothing and footwear prices were putting upward pressure on CPI after recording a smaller fall of 3 per cent between June and July, compared to a 3.4 per cent drop last year.
Utility bills were also pricier last month, with electricity, gas and other fuels lifting 0.8 per cent after coming in flat over the period in 2016.
The CPI including owner-occupiers’ housing costs (CPIH) also remained at 2.6 per cent in July, in line with the rate for June.
CPIH is the ONS’s preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home.
• Savers face locking their money away for seven years in order to find a cash account that even keeps up with current inflation rates, writes Vicky Shaw.
Those searching for an account that matches the CPI rate of 2.6 per cent have the option of putting their money into a fixed seven-year bond from PCF Bank, according to Moneyfacts.co.uk.
In recent months, the savings market has seen some improvements, Moneyfacts said, with the number of rate increases outweighing the number of cuts for the last seven months in a row. July saw 151 savings rate rises and 45 cuts.
The bulk (60 per cent) of the rate rises last month were for fixed-rate bonds. Since January, the rate offered on an average two-year fixed bond has grown from 1.04 per cent to 1.32 per cent.
A similar trend has been seen for longer-term bonds. The average three-year fixed bond rate has increased from 1.21 per cent in January to 1.56 per cent, while the average five-year fixed bond rate has increased to 1.92 per cent, from 1.67 per cent in January.
Despite this, savings rates overall still have a long path to recovery ahead of them, Moneyfacts said.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said savers could be faced with low interest rates for a while yet.
She added: “Combined with inflation eroding their hard-earned cash, it wouldn’t be too surprising to find this is deterring people from putting money aside.”