LONDON — Consumer prices in Britain increased at a slower rate in July after hitting a 14-month high in June, relieving some pressure on households but remaining well above the central bank’s inflation target.
Inflation slowed to 2.8 percent in July from 2.9 percent in June, partly because clothing stores discounted prices and airfares were lower, the Office for National Statistics said Tuesday. A slowdown in consumer price increases would help households, which have been squeezed by more expensive utility costs and other living expenses just as many employees saw their salaries cut or frozen.
The Bank of England, which has its own inflation target of 2 percent, has been predicting that consumer price increases would remain at the current level before starting to ease toward the end of this year. But some economists warned that higher oil prices and a strengthening housing market might help to push prices up much further in the short-term.
Howard Archer, an economist at IHS Global Insight, wrote in a note to clients that consumer price inflation “might touch 3 percent in the near term, but it should start heading gradually down towards the end of the year.” He added, “Much will clearly depend on oil price developments.”
Britain’s economy has started to show signs of recovery after narrowly avoiding a triple-dip recession at the beginning of this year. Consumer confidence has been improving and the construction and manufacturing industries have returned to growth. The values of houses have been increasing, not just in London but across the country.
Still, the Bank of England’s new governor, Mark J. Carney, warned last week that the recovery would be very slow and that headwinds persisted. To help speed up the recovery, Mr. Carney linked future decisions on interest rates, which are currently at a record low of 0.5 percent, to unemployment. He said that the Bank of England planned to keep interest rates unchanged until unemployment falls to 7 percent from 7.8 percent at the moment.
The plan, which is similar to steps taken by the United States Federal Reserve, is expected to eliminate some uncertainty for consumers and companies about the future cost of borrowing. But Mr. Carney also said the central bank was sticking to its main mandate of bringing down consumer price inflation. Unlike most of its neighbors, Britain continues to be plagued by relatively high inflation that is linked to several factors, including oil and gas prices.
Cathy Jamieson, a member of Parliament for the opposition Labour Party, said that despite the slowdown in inflation in July, “prices continue to rise faster than wages as the Tory-led government’s cost of living crisis continues.”
Some lawmakers and economists have started to warn that recent increases in the prices of homes could make them even more unaffordable for many. In a separate report Tuesday, the statistical office said house-price inflation rose annually to 3.1 percent in June compared to 2.9 percent in May, bringing prices to the highest level in five years.
The values of homes rose fastest in London, an 8.1 percent increase, helped by buyers from Asia and Europe looking for a haven for their investments.
Article source: http://www.nytimes.com/2013/08/14/business/global/rise-of-inflation-eases-in-britain.html?partner=rss&emc=rss