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UK Inflation Unchanged

British consumer price inflation unexpectedly held steady last month as fuel prices fell amid other signs that the squeeze on households’ spending power may slowly be starting to level off.

Official figures today showed the pace at which manufacturers’ raw material costs are rising slowed by the most in over five years as the initial impact of June 2016’s vote to leave the European Union dropped out of annual comparisons.

Consumer price inflation held unchanged at 2.6 percent in July compared with the average expectation in a poll of economists for it to rise to 2.7 percent, the Office for National Statistics said.

Further price rises may still be in train, as the Bank of England predicted at the start of the month that inflation will reach around 3 percent in October, after earlier touching a four-year high of 2.9 percent in May. However, a softer outlook for inflation will reduce the chance of more BoE policymakers joining the minority who are calling for a rate rise now.

Sterling has fallen 14 percent since the referendum against a trade-weighted basket of major currencies such as the U.S. dollar and the euro, and the BoE has said this is why inflation is above its 2 percent target. The BoE expects CPI will only fall slowly, and to remain above its 2 percent target for the next three years, based on its experience of a previous fall in sterling 10 years ago at the start of the financial crisis.

The ONS also released figures for house prices in June, which showed a 4.9 percent annual rise across the United Kingdom as a whole compared with 5.0 percent in May, the weakest increase since March. Prices in London alone grew by 2.9 percent.

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