Higher prices for games and clothing meant UK consumer price inflation rose slightly in June after falling to its lowest level in four years, as the economy reopens after months of coronavirus-related lockdown.
Inflation rose to 0.6 per cent year on year in June, data from the Office for National Statistics released on Wednesday showed, a slight increase from 0.5 per cent in May. Economists polled by Bloomberg had forecast a dip to 0.4 per cent.
Higher prices for clothes, footwear and recreational activities such as computer games were offset by falling costs of food, hotels and restaurants.
The nationwide shutdown imposed to prevent the spread of coronavirus has sent inflation plummeting, from 1.5 per cent in March to 0.8 per cent in April. The Bank of England’s target is 2 per cent.
Core inflation, which excludes volatile elements such as food, energy and tobacco, rose slightly from 1.2 per cent to 1.4 per cent.
With wage growth forecast to remain low and job losses likely to continue as the economy reopens, economists believe inflation will fall further, despite the small uptick this month.
Paul Dales, chief UK economist at Capital Economics, said any rise “probably won’t be sustained for long . . . in fact, by July or August, CPI inflation may have fallen below zero.”
After a few weeks of higher demand as consumers rushed back to newly reopened shops, retailers would now need to offer discounts to tempt back cautious customers, he said.
Government measures to restart the economy, including a temporary VAT cut for the hospitality sector from 20 per cent to 5 per cent and an “eat out to help out” restaurant offer announced last week, are also likely to push down prices.
“The near-term fundamentals for consumer spending have clearly taken a very substantial downturn as a result of coronavirus,” said Howard Archer, chief economic adviser at EY Item Club.
“This is likely to keep consumers price-conscious for some time, even when the economy starts to recover.”
Gross domestic product rose 1.8 per cent in May from the previous month, but the UK economy was still 24.5 per cent smaller than in February, figures released on Tuesday showed. Economists had forecast a significantly sharper rebound in GDP in May.
A tentative economic recovery and continued low inflation will present a challenge for the Bank of England’s Monetary Policy Committee, which is considering further stimulus measures after it cut interest rates to 0.1 per cent, their lowest ever, in March.
“A deflationary environment and elevated uncertainty means interest rates are likely to remain at ultra-low levels well into next year,” said Debapratim De, senior economist at Deloitte.
Lockdown closures had made it difficult to measure inflation, the ONS noted, with 13.4 per cent of the items usually used to measure prices unavailable to UK consumers in June.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50LzBkYTlkNmE2LWY4YTUtNGU3ZC05NGZjLTI1ZDgzZmMwMTg2NtIBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50LzBkYTlkNmE2LWY4YTUtNGU3ZC05NGZjLTI1ZDgzZmMwMTg2Ng?oc=5
2020-07-15 08:34:00Z
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