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UK inflation turns positive

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The UK returned to inflation territory in July, with the Consumer Prices Index (CPI) measure rising to 0.1% from 0% in June.

The Office for National Statistics (ONS) said a smaller fall in clothing prices was the main contributor to the rise in inflation but falling prices for food and non-alcoholic beverages partially offset the rise.

The CPI rate has been hovering around 0% since February. It dipped below zero in April for the first time in 50 years, sending the UK briefly into deflationary territory.

Commenting on the figures, Maike Currie, associate investment director, Fidelity Personal Investing, said: “Up until today, inflation has either been flat or negative for most of this year – a far cry from the Bank of England’s 2% inflation target. This puts the rate rise debate back on the table. Low inflation has meant the monetary policy committee (MPC) remain dovish on raising interest rates, but the tide could be turning on the era of ultra-low rates.

“Earlier this month, the MPC minutes showed one member, Ian McCafferty, voted in favour of an interest rate hike. And in the last few days, Kristin Forbes, another MPC member, has voiced her concerns about keeping rates at record lows saying interest rates will need to be increased before inflation hits the 2% target.  The next MPC minutes on how members vote could provide some telling insight on whether Carney’s vision of a gradual trot towards higher interest rates will in fact turn into a faster gallop.”

Azad Zangana, senior European economist at Schroders, said: “Overall, the latest inflation figures show signs of a healthy economy that is enjoying the dividends from lower global commodity prices. The Bank of England has started to question how long interest rates can remain at current record-low levels, but in our view, is unlikely to hike rates before CPI inflation returns to at least 1%, which may not happen before the second quarter of 2016.”


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